Approximate dynamic programming methods for an inventory allocation problem under uncertainty

Abstract

Abstract We propose two approximate dynamic programming methods to optimize the distribution operations of a company manufacturing a certain product at multiple production plants and shipping it to different customer locations for sale. We begin by formulating the problem as a dynamic program. Our first approximate dynamic programming method uses a linear approximation of the value function and computes the parameters of this approximation by using the linear programming representation of the dynamic program. Our second method relaxes the constraints that link the decisions for different production plants. Consequently, the dynamic program decomposes by the production plants. Computational experiments show that the proposed methods are computationally attractive, and in particular, the second method performs significantly better than standard benchmarks. © 2006 Wiley Periodicals, Inc. Naval Research Logistics, 2006

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