Optimising replenishment policy in an integrated supply chain with controllable lead time and backorders-lost sales mixture
by Marcello Braglia; Davide Castellano; Dongping Song
International Journal of Logistics Systems and Management (IJLSM), Vol. 29, No. 4, 2018

Abstract: This paper aims to optimise the inventory replenishment policy in an integrated supply chain consisting of a single supplier and a single buyer. The system under consideration has the features such as backorders-lost sales mixture, controllable lead time, stochastic demand, and stockout costs. The underlying problem has not been studied in the literature. We present a novel approach to formulate the optimisation problem, which is able to satisfy the constraint on the number of admissible stockouts per time unit. To solve the optimisation problem, we propose two algorithms: an exact algorithm and a heuristic algorithm. These two algorithms are developed based on some analytical properties that we established by analysing the cost function in relation to the decision variables. The heuristic algorithm employs an approximation technique based on an ad-hoc Taylor series expansion. Extensive numerical experiments are provided to demonstrate the effectiveness of the proposed algorithms.

Online publication date: Thu, 01-Mar-2018

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