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Simulation-based Optimization of Inventory Model with Products Substitution

In: Innovative Quick Response Programs in Logistics and Supply Chain Management

Author

Listed:
  • Di Huang
  • Qiu Hong Zhao

    (Beihang University)

  • Cheng Cheng Fan

Abstract

The substitution between products is a common phenomenon in supply chains when customers find their favorite product unavailable. Products substitution can improve the availability of products and further enhance the quick response ability of supply chains, especially when the products are perishable. In this chapter, a single-period newsboy framework is utilized in a multi-product environment, wherein one product may be taken as a direct substitute for the others. We present an inventory model allowing for free and full substitution among multiple products and provide the necessary and sufficient optimality conditions for the existence of the optimal solution (optimal quantity of each product ordered). With the demonstration that the objective function is both concave and submodular, a Monte Carlo simulation algorithm for finding the optimal solution is proposed, and computational experiments are conducted to analyze the impact of products substitution on expected profit and total inventory level.

Suggested Citation

  • Di Huang & Qiu Hong Zhao & Cheng Cheng Fan, 2010. "Simulation-based Optimization of Inventory Model with Products Substitution," International Handbooks on Information Systems, in: T. C. Edwin Cheng & Tsan-Ming Choi (ed.), Innovative Quick Response Programs in Logistics and Supply Chain Management, pages 297-312, Springer.
    • Handle: RePEc:spr:ihichp:978-3-642-04313-0_15
    DOI: 10.1007/978-3-642-04313-0_15
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    Cited by:

    1. Huang, Di & Zhou, Hong & Zhao, Qiu-Hong, 2011. "A competitive multiple-product newsboy problem with partial product substitution," Omega, Elsevier, vol. 39(3), pages 302-312, June.

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