When supplier's availability affects the replenishment lead time – An extension of the supply-interruption problem

When supplier's availability affects the replenishment lead time – An extension of the supply-interruption problem

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Article ID: iaor20083584
Country: Netherlands
Volume: 175
Issue: 2
Start Page Number: 992
End Page Number: 1008
Publication Date: Dec 2006
Journal: European Journal of Operational Research
Authors: ,
Keywords: supply & supply chains
Abstract:

This paper presents an exact treatment of a continuous-review inventory system with compound Poisson demand, Erlang-distributed lead times and random supply interruptions. In contrast with the existing models in the literature, we take into account the supplier's availability in characterizing the lead time of a replenishment order. Assuming that the supplier's availability can be described by a continuous-time homogeneous Markov chain with two states (on and off) and that stockouts are lost, we derive the stationary distribution of the inventory level (stock-on-hand) under an (s, Q)-type control policy. This probability distribution is then used to formulate an exact expression for the long-run average cost per unit time of operating the inventory system. Some numerical results are also provided.

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