Performance evaluation of a production/inventory system with periodic review and endogenous lead times

Robert N. Boute · Marc Lambrecht · Benny Van Houdt B

27 citations0/0 files storedNaval Research Logistics (NRL)

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Supply Chain and Inventory Management Management and Optimization Techniques Advanced Queuing Theory Analysis

Abstract

Abstract This paper considers a discrete time, single item production/inventory system with random period demands. Inventory levels are reviewed periodically and managed using a base‐stock policy. Replenishment orders are placed with the production system which is capacitated in the sense that there is a single server that sequentially processes the items one at a time with stochastic unit processing times. In this setting the variability in demand determines the arrival pattern of production orders at the queue, influencing supply lead times. In addition, the inventory behavior is impacted by the correlation between demand and lead times: a large demand size corresponds to a long lead time, depleting the inventory longer. The contribution of this paper is threefold. First, we present an exact procedure based on matrix‐analytic techniques for computing the replenishment lead time distribution given an arbitrary discrete demand distribution. Second, we numerically characterize the distribution of inventory levels, and various other performance measures such as fill rate, base‐stock levels and optimal safety stocks, taking the correlation between demand and lead times into account. Third, we develop an algorithm to fit the first two moments of the demand and service time distribution to a discrete phase‐type distribution with a minimal number of phases. This provides a practical tool to analyze the effect of demand variability, as measured by its coefficient of variation, on system performance. We also show that our model is more appropriate than some existing models of capacitated systems in discrete time. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007

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1999Introduction to Matrix Analytic Methods in Stochastic Modeling 2000Foundations of Inventory Management 2004Optimal Policies for a Multi-Echelon Inventory Problem 1960Optimal Policies for a Multi-Echelon Inventory Problem 1991Structured Stochastic Matrices of M/G/1 Type and Their Applications.2003Measuring and avoiding the bullwhip effect: A control theoretic approach 1986An Inventory Model with Limited Production Capacity and Uncertain Demands II. The Discounted-Cost Criterion 1966The Status of Mathematical Inventory Theory

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2013Coordinating lead times and safety stocks under autocorrelated demand

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