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A Single-Unit Decomposition Approach to Multiechelon Inventory Systems

Author

Listed:
  • Alp Muharremoglu

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • John N. Tsitsiklis

    (Laboratory for Information and Decision Sciences, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

Abstract

We show the optimality of state-dependent echelon base-stock policies in uncapacitated serial inventory systems with Markov-modulated demand and Markov-modulated stochastic lead times in the absence of order crossing. Our results cover finite-time horizon problems as well as infinite-time horizon formulations, with either a discounted or an average cost criterion. We employ a novel approach, based on a decomposition of the problem into a series of single-unit single-customer problems that are essentially decoupled. Besides providing a simple proof technique, this approach also gives rise to efficient algorithms for the calculation of the base-stock levels.

Suggested Citation

  • Alp Muharremoglu & John N. Tsitsiklis, 2008. "A Single-Unit Decomposition Approach to Multiechelon Inventory Systems," Operations Research, INFORMS, vol. 56(5), pages 1089-1103, October.
    • Handle: RePEc:inm:oropre:v:56:y:2008:i:5:p:1089-1103
    DOI: 10.1287/opre.1080.0620
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    References listed on IDEAS

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