A serial inventory system with leadtime dependent demands : A reduced state approximation

Abstract

Customer response to stockouts has been traditionally modeled as either full backordering or lost sales regardless of the length of wait that a customer may experience until an order is received by the retailer. There is convincing evidence that customers do indeed consider such waits (the remaining lead times) when they make purchase decisions during a stockout.
In this talk, we consider an (S-1,S) serial inventory system facing such lead time dependent backordering decisions. In such a system, the purchase decisions depend on the waiting tolerance distribution of the customer population and the state of the system, which may be described through the times for a given number of most recent orders. We model the system via the method of supplementary variables, establish certain theoretical properties, and propose a reduced state approximation that utilizes only the age of the oldest item in the system. In an extensive numerical study, we demonstrate the efficacy of the proposed approximation in terms of its quality and the goodness of the optimal solution thereby obtained. We also develop some conjectures that are supported by our numerical results and are consistent with the full backordering counterparts.

BIO

Emre Berk has received his BS degree in mechanical engineering at Bogazici University, Istanbul, Turkey and continued his studies in the US as a Fulbright scholar between 1987 and 1996. He received his MS degree in mechanical engineering at Washington State University, MBA and PhD degrees at University of Washington. His completed his dissertation under Professor Klastorin on admission and discharge policies for tertiary health care systems. Upon graduation, he concentrated his research on value chain management with particular emphases on inventory theory, production planning and sustainable operations. His research projects have been funded nationally by TUBITAK and by the NSF in the US. His research have appeared in journals such as Management Science, Operations Research, IIE Transactions, EJOR, NRL and IJPE, and has recently contributed two chapters to Decision Sciences: Theory and Practice, published by CRC Press. He is currently an associate professor at the Faculty of Business Administration at Bilkent University.

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