Dynamic inventory strategies for profit maximization in a service facility with stochastic service, demand and lead time

Oded Berman, Eungab Kim

Research output: Contribution to journalArticlepeer-review

36 Scopus citations

Abstract

This paper addresses an optimal inventory control in a supply chain in which customers arrive at a facility according to a Poisson process and the facility provides service which takes exponential amounts of time, using items supplied by an outside supplier with exponential lead time process. Formulating our model as a Markov decision problem, we identify a replenishment policy which maximizes the facility's profit subject to the costs of service delay, inventory holding, and replenishment setup and analytically examine how the changes in system parameters affect the optimal profit and the optimal replenishment policy. We show that these results can be extended to Erlang lead time process. We present numerical study for the optimal performance evaluation and comparison of the optimal replenishment policy with (Q, r) policy.

Original languageEnglish
Pages (from-to)497-521
Number of pages25
JournalMathematical Methods of Operations Research
Volume60
Issue number3
DOIs
StatePublished - Dec 2004

Keywords

  • Erlang process
  • Inventory management
  • Markov decision processes
  • Optimal control

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