Inventory policies for a make‐to‐order system with a perishable component and fixed ordering cost |
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Authors: | Katia C Frank Hyun‐Soo Ahn Rachel Q Zhang |
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Institution: | 1. Macy's Systems and Technology, Johns Creek, Georgia 30097;2. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109;3. Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong |
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Abstract: | We consider a make‐to‐order production system where two major components, one nonperishable (referred to as part 1) and one perishable (part 2), are needed to fulfill a customer order. In each period, replenishment decisions for both parts need to be made jointly before demand is realized and a fixed ordering cost is incurred for the nonperishable part. We show that a simple (sn,S,S) policy is optimal. Under this policy, S along with the number of backorders at the beginning of a period if any and the availability of the nonperishable part (part 1) determines the optimal order quantity of the perishable part (part 2), while (sn,S) guide when and how much of part 1 to order at each state. Numerical study demonstrates that the benefits of using the joint replenishment policy can be substantial, especially when the unit costs are high and/or the profit margin is low. © 2009 Wiley Periodicals, Inc. Naval Research Logistics, 2009 |
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Keywords: | inventory dynamic programming stochastic |
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