A characterization of optimal base-stock levels for a multistage serial supply chain

A characterization of optimal base-stock levels for a multistage serial supply chain

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Article ID: iaor2016995
Volume: 63
Issue: 1
Start Page Number: 32
End Page Number: 46
Publication Date: Feb 2016
Journal: Naval Research Logistics (NRL)
Authors: ,
Keywords: combinatorial optimization, inventory, stochastic processes
Abstract:

In this article, we present a multistage model to optimize inventory control decisions under stochastic demand and continuous review. We first formulate the general problem for continuous stages and use a decomposition solution approach: since it is never optimal to let orders cross, the general problem can be broken into a set of single‐unit subproblems that can be solved in a sequential fashion. These subproblems are optimal control problems for which a differential equation must be solved. This can be done easily by recursively identifying coefficients and performing a line search. The methodology is then extended to a discrete number of stages and allows us to compute the optimal solution in an efficient manner, with a competitive complexity.

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