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Dynamic inventory strategies for profit maximization in a service facility with stochastic service, demand and lead time

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  • Oded Berman
  • Eungab Kim

Abstract

This paper addresses an optimal inventory control in a supply chain in which customers arrive at a facility according to a Poisson process and the facility provides service which takes exponential amounts of time, using items supplied by an outside supplier with exponential lead time process. Formulating our model as a Markov decision problem, we identify a replenishment policy which maximizes the facility’s profit subject to the costs of service delay, inventory holding, and replenishment setup and analytically examine how the changes in system parameters affect the optimal profit and the optimal replenishment policy. We show that these results can be extended to Erlang lead time process. We present numerical study for the optimal performance evaluation and comparison of the optimal replenishment policy with (Q,r) policy. Copyright Springer-Verlag 2004

Suggested Citation

  • Oded Berman & Eungab Kim, 2004. "Dynamic inventory strategies for profit maximization in a service facility with stochastic service, demand and lead time," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 60(3), pages 497-521, December.
    • Handle: RePEc:spr:mathme:v:60:y:2004:i:3:p:497-521
    DOI: 10.1007/s001860400369
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    Citations

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    Cited by:

    1. Sha, Yue & Zhang, Junlong & Cao, Hui, 2021. "Multistage stochastic programming approach for joint optimization of job scheduling and material ordering under endogenous uncertainties," European Journal of Operational Research, Elsevier, vol. 290(3), pages 886-900.
    2. Song, Dong-Ping & Dong, Jing-Xin & Xu, Jingjing, 2014. "Integrated inventory management and supplier base reduction in a supply chain with multiple uncertainties," European Journal of Operational Research, Elsevier, vol. 232(3), pages 522-536.
    3. Zhao, Ning & Lian, Zhaotong, 2011. "A queueing-inventory system with two classes of customers," International Journal of Production Economics, Elsevier, vol. 129(1), pages 225-231, January.
    4. Jeganathan, K. & Abdul Reiyas, M. & Prasanna Lakshmi, K. & Saravanan, S., 2019. "Two server Markovian inventory systems with server interruptions: Heterogeneous vs. homogeneous servers," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 155(C), pages 177-200.
    5. Maike Schwarz & Hans Daduna, 2006. "Queueing systems with inventory management with random lead times and with backordering," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 64(3), pages 383-414, December.
    6. Jalili Marand, Ata & Li, Hongyan & Thorstenson, Anders, 2019. "Joint inventory control and pricing in a service-inventory system," International Journal of Production Economics, Elsevier, vol. 209(C), pages 78-91.
    7. A. Krishnamoorthy & R. Manikandan & B. Lakshmy, 2015. "A revisit to queueing-inventory system with positive service time," Annals of Operations Research, Springer, vol. 233(1), pages 221-236, October.

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