Inventory control in dual sourcing commodity procurement with price correlation

Central European Journal of Operations Research - In this paper, we focus on the role of inventory management as a means for operational hedging by dual sourcing of commodities using a multi-period...     

Suboptimal policies for stochastic cash balance problems

Summary For a cash balance model having piecewise linear costs and an exponentially correlated sequence of demand two suboptimal solutions are compared. The first approach derives the bestlinear transfer policy reducing the information needed essentially to a sequence of demand forecasts.The second approach which is usually to be met in practice takes forecasts of demand from the outset and then uses a rolling horizon optimization procedure not restricting the class of feasible solutions to be linear. It turns out that the linear approach is for all cost and demand parameters better than the deterministic one.

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Zusammenfassung Für ein Kassenhaltungsmodell mit stückweise linearen Kosten und exponentiell korrelierter Nachfrage werden zwei suboptimale Lösungsverfahren verglichen. Beim ersten Ansatz wird die bestelineare Transferpolitik ermittelt, wobei die benötigte Information sich im wesentlichen auf die Folge der Nachfrageprognosen reduzieren läßt.Der zweite Ansatz, der gewöhnlich in der Praxis angewendet wird, beruht auf der direkten Verwendung von Nachfrageprognosen und benutzt im Rahmen rollender Planung ein deterministisches Optimierungsverfahren. Hierbei wird die Klasse der möglichen Transferentscheidungen nicht auf lineare Politiken eingeschränkt.Es stellt sich heraus, daß das lineare Lösungsverfahren für alle Kosten- und Nachfrageparameter besser ist als das deterministische.

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This paper has partly been supported by the Deutsche Forschungsgemeinschaft (Schn 159/1).     

Decision support for spare parts acquisition in post product life cycle

A major task in service management is the timely and cost efficient provision of spare parts for durable products. This especially holds good, when the regular production of the product, its components and parts has been discontinued, but customer service still has to be guaranteed for quite a long time. In such post product life cycle period, three options are available to organize the spare parts acquisition, namely (i) setting up a single large order within the final lot of regular production, (ii) performing extra production runs until the end of service and (iii) using remanufacturing to gain spare parts from used products. These three options are characterized by different cost and flexibility properties. Due to the time-variability and uncertainty of demands for spare parts and also that of the returns of used products, it is a challenging task to find out the optimal combination of these three options. In this paper we show how this problem can be modeled and solved by Decision Tree and stochastic Dynamic Programming procedure. Based on the Dynamic Programming approach a heuristic method is proposed, which can be employed to come up with a simple solution procedure for real-world spare parts acquisition problems during the post product life cycle. A numerical example is presented to demonstrate the application of the solution methods described in the paper.     

Dual sourcing using capacity reservation and spot market: Optimal procurement policy and heuristic parameter determination

This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price and reservation level. A reservation cost, proportional with the reservation level, has to be paid for the option of receiving any amount per period up to the reservation level. A long-term decision has to be made regarding the reserved capacity level, and then it has to be decided – period by period – which quantities to procure from the two sources. Considering the multi-period problem with stochastic demand and spot price, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming. Exploiting these structural properties, an advanced heuristic is developed to determine the respective policy parameters. This heuristic is compared with two rolling-horizon approaches which use the one-period and two-period optimal solution. A comprehensive numerical study reveals that the approaches based on one-period and two-period solutions have considerable drawbacks, while the advanced heuristic performs very well compared to the optimal solution. Finally, by exploiting our numerical results we give some insights into the system’s behavior under problem parameter variations.     

Concepts for safety stock determination under stochastic demand and different types of random production yield

We consider a manufacturer’s stochastic production/inventory problem under periodic review and present methods for safety stock determination to cope with uncertainties that are caused by stochastic demand and different types of yield randomness. Following well-proven inventory control concepts for this problem type, we focus on a critical stock policy with a linear order release rule. A central parameter of this type of policy is given by the safety stock value. When non-zero manufacturing lead times are taken into account in the random yield context, it turns out that safety stocks have to be determined that vary from period to period. We present a simple approach for calculating these dynamic safety stocks for different yield models. Additionally, we suggest approaches for determining appropriate static safety stocks that are easier to apply in practice. In a simulation study we investigate the performance of the proposed safety stock variants.     

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