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On a Deterministic Approximation of Inventory Systems with Sequential Service-Level Constraints

ervice-level constraint is often used as a metric to directly control the quality of service (e.g., managing the probability of stockout) in practice. Many inventory problems with service-level constraints are often difficult to solve and are typically approximated by deterministic formulations. This raises an important question regarding the quality of such an approach. To shed light on this question, in this paper, we consider two simplified yet fundamental inventory models (with backorder and lost sales) with independent demands, positive lead times, and sequential probabilistic service-level constraints, and study the performance of a natural order-up-to policy whose parameters can be calculated using the optimal solution of a deterministic approximation of the backorder inventory system. We show that it is asymptotically optimal for both the backorder and lost-sales systems in the setting with a high service-level requirement with a stronger performance bound for the backorder system. Our analysis for the lost-sales system involves construction of an alternative backorder system whose expected total cost can be related to that of the analogous lost-sales system. Overall, our result contributes to the growing body of inventory literature that suggests the near optimality of simple heuristic policies. Moreover, it also gives credence to the use of deterministic approximation for solving complex inventory problems in practice, at least for applications in which the targeted service level is sufficiently high.

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Informasi Detail

Judul Seri

OPERATIONS RESEARCH; Vol.69 No.4 July-August 2021

No. Panggil

-

Penerbit

: .,

Deskripsi Fisik

p. 1057 - 1076

Bahasa

English

ISBN/ISSN

-

Klasifikasi

-

Tipe Isi

-

Tipe Media

-

Tipe Pembawa

-

Edisi

-

Subjek

LINEAR PROGRAMMING
INVENTORY
ASYMPTOTIC OPTIMALITY
LOST SALES
DETERMINISTIC APPROXIMATION
SERVICE-LEVEL CONSTRAINTS

Info Detail Spesifik

https://doi.org/10.1287/opre.2020.2083

Pernyataan Tanggungjawab

Lai Wei, Stefanus Jasin, Linwei Xin

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