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A robust optimization approach to model supply and demand uncertainties in inventory systems

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  • Jie Chu
  • Kai Huang
  • Aurélie Thiele

Abstract

In this article, we simultaneously consider supply and demand uncertainties in a robust optimization (RO) framework. First, we apply the RO approach to a multi-period, single-station inventory problem where supply uncertainty is modeled by partial supply. Our main finding is that solving the robust counterpart is equivalent to solving a nominal problem with a modified deterministic demand sequence. In particular, in the stationary case the optimal robust policy follows the quasi-(s, S) form and the corresponding s and S levels are theoretically computable. Subsequently, the RO framework is extended to a multi-echelon case. We show that for a tree structure network, decomposition applies so that the optimal single-station robust policy remains valid for each echelon in the tree. We conduct extensive numerical studies to demonstrate the effectiveness of the proposed robust policies. Our results suggest that significant cost benefits can be realized by incorporating both supply and demand uncertainties.

Suggested Citation

  • Jie Chu & Kai Huang & Aurélie Thiele, 2019. "A robust optimization approach to model supply and demand uncertainties in inventory systems," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 70(11), pages 1885-1899, November.
  • Handle: RePEc:taf:tjorxx:v:70:y:2019:i:11:p:1885-1899
    DOI: 10.1080/01605682.2018.1507424
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    Cited by:

    1. Thevenin, Simon & Ben-Ammar, Oussama & Brahimi, Nadjib, 2022. "Robust optimization approaches for purchase planning with supplier selection under lead time uncertainty," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1199-1215.
    2. Metzker Soares, Paula & Thevenin, Simon & Adulyasak, Yossiri & Dolgui, Alexandre, 2024. "Adaptive robust optimization for lot-sizing under yield uncertainty," European Journal of Operational Research, Elsevier, vol. 313(2), pages 513-526.
    3. Bo Feng & Jixin Zhao & Zheyu Jiang, 2022. "Robust pricing for airlines with partial information," Annals of Operations Research, Springer, vol. 310(1), pages 49-87, March.
    4. Xiaodan Jin & Hong Zhou, 2022. "Incentives to Enhance Production Reliability against Disruption: Cost-Sharing vs. Penalty," Sustainability, MDPI, vol. 14(15), pages 1-18, July.

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