Approximating Order-up-to Policies for Inventory Systems with Binomial Yield
2014
markdownabstract__Abstract__
This paper studies an inventory policy for a retailer who orders his products
from a supplier whose deliveries only partially satisfy the quality requirements.
We model this situation by an innite-horizon periodic-review model
with binomial random yield and positive lead time. We propose an orderup-
to policy based on approximating the inventory model with unreliable
supplier by a model with a reliable supplier and suitably modied demand
distribution. The performance of the order-up-to policy is veried by comparing
it with both the optimal policy and the safety stock policy proposed
in Inderfurth & Vogelgesang (2013). Further, we extend our approximation
to a dual-sourcing model with two suppliers: the rst slow and unreliable,
and the other fast and fully reliable. Compared to the dual-index orderup-
to policy for the model with full information on the yield, the proposed approximation gives promising results.
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