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Approximation algorithms for optimal purchase/inventory policy when purchase price and demand are stochastic
Linnaeus University, School of Business and Economics, Department of Management Accounting and Logistics. Lund University. (Supply Chain Studies)
Tsinghua University, China.
2014 (English)In: Or-Spektrum, ISSN 0171-6468, E-ISSN 1436-6304, Vol. 36, no 4, p. 1077-1095Article in journal (Refereed) Published
Abstract [en]

We consider a purchase/inventory control problem in which the purchase price and demand are stochastic, a common situation encountered by firms that replenish in a foreign currency or from commodity markets. More specifically, we assume that the demand follows a Poisson arrival process and that the log-price evolves according to a general Wiener process. Under these circumstances, the optimal policy is a state dependent base-stock policy that can be described as a series of threshold prices. An iterative procedure for determining the optimal thresholds has been derived earlier but, even for the simplest price process, the solution quickly becomes numerically intractable. To deal with this, we propose an approximation that allows us to derive simple heuristics for finding thresholds that are close to optimal. For certain price processes the heuristics are just a series of closed-form expressions. The computational complexity is reduced significantly, and the numerical study shows that the new heuristics perform considerably better than earlier suggested heuristics.

Place, publisher, year, edition, pages
2014. Vol. 36, no 4, p. 1077-1095
Keywords [en]
Stochastic purchase price, Inventory control, Approximation algorithms, Base-stock levels
National Category
Business Administration
Research subject
Economy, Ekonomistyrning
Identifiers
URN: urn:nbn:se:lnu:diva-37914DOI: 10.1007/s00291-014-0369-4ISI: 000342206700010Scopus ID: 2-s2.0-84907686852OAI: oai:DiVA.org:lnu-37914DiVA, id: diva2:759655
Available from: 2014-10-30 Created: 2014-10-30 Last updated: 2017-12-05Bibliographically approved

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Berling, Peter

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf