Demand variability impact on the replenishment policy in a two-echelon supply chain model

Demand variability impact on the replenishment policy in a two-echelon supply chain model

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Article ID: iaor20051653
Country: South Korea
Volume: 29
Issue: 3
Start Page Number: 111
End Page Number: 128
Publication Date: Sep 2004
Journal: Journal of the Korean ORMS Society
Authors:
Keywords: programming: markov decision
Abstract:

We consider a supply chain model with a make-to-order production facility and a single supplier. The model we treat here is a special case of a two-echelon inventory model. Unlike classical two-echelon systems, the demand process at the supplier is affected by production process at the production facility as well as customer order arrival process. In this paper, we address that how the demand variability impacts on the optimal replenishment policy. To this end, we incorporate Erlang and phase-type demand distributions into the model. Formulating the model as a Markov decision problem, we investigate the structure of the optimal replenishment policy. We also implement a sensitivity analysis on the optimal policy and establish its monotonicity with respect to system cost parameters.

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