Inventory systems with stochastic demand and supply: Properties and approximations

13 years 4 months ago

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ic copy available at: http://ssrn.com/abstract=1115410 Inventory Systems with Stochastic Demand and Supply: Properties and Approximations Amanda J. Schmitt Center for Transportation and Logistics Massachusetts Institute of Technology Cambridge, MA, USA Lawrence V. Snyder Dept. of Industrial and Systems Engineering Lehigh University Bethlehem, PA, USA Zuo-Jun Max Shen Dept. of Industrial Engineering and Operations Research University of California Berkeley, CA, USA November 17, 2008 We model a retailer whose supplier is subject to complete supply disruptions. We combine discrete-event uncertainty (disruptions) and continuous sources of uncertainty (stochastic demand or supply yield), which have different impacts on optimal inventory settings. This prevents optimal solutions from being found in closed form. We develop a closed-form approximate solution by focusing on a single stochastic period of demand or yield. We show how the familiar newsboy fractile is a critical trade-off in these...

Amanda J. Schmitt, Lawrence V. Snyder, Zuo-Jun Max

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