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Optimal Replenishment and Rework with Multiple Unreliable Supply Sources

Author

Listed:
  • Jinfa Chen

    (Wall Street Systems, New York)

  • David D. Yao

    (IEOR Department, 302 Mudd Building, Columbia University, New York, NY 10027)

  • Shaohui Zheng

    (Department of ISMT, Hong Kong University of Science and Technology, Clearwater Bay, Kowloon, Hong Kong)

Abstract

We study a production-inventory system with multiple unreliable supply sources. Through inspection and rework, the system can improve the quality of the units received from the supply sources. There are two interleaved decisions: the replenishment quantities from the sources and the inspection-rework quantities among the units received. We show the optimal solution to the replenishment decision can be efficiently derived from a greedy algorithm, and inspection-rework is optimally applied to a single source identified by the algorithm. Furthermore, in the case of linear cost functions, it is optimal to place orders from two supply sources, i.e., dual sourcing. The results extend to the infinite-horizon case, where an order-up-to policy is optimal. The model also readily adapts to situations in which the supply imperfection takes the form of a reduced delivery quantity (yield loss).

Suggested Citation

  • Jinfa Chen & David D. Yao & Shaohui Zheng, 2001. "Optimal Replenishment and Rework with Multiple Unreliable Supply Sources," Operations Research, INFORMS, vol. 49(3), pages 430-443, June.
    • Handle: RePEc:inm:oropre:v:49:y:2001:i:3:p:430-443
    DOI: 10.1287/opre.49.3.430.11214
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    References listed on IDEAS

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