Inventory control under speculation: Myopic heuristics and exact procedures |
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| Institution: | 1. Austin Product Center – Research, Schlumberger, 8311 North FM 620, Austin, TX 78726, USA;2. Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, PA 15213, USA;1. Facultad de Matemáticas, Universidad de Murcia, Campus de Espinardo, 30100 Murcia, Spain;2. Dipartimento di Scienze Matematiche, Politecnico di Torino, C.so Duca degli Abruzzi, 24, 10129 Torino, Italy;3. Dipartimento di Matematica, Università di Salerno, Via Giovanni Paolo II, 132, 84084 Fisciano, SA, Italy;1. Department of Industrial and Systems Engineering, Mississippi State University, Starkville, MS, 39759-9542, USA;2. Department of Civil and Environmental Engineering, University of Connecticut, Storrs, CT 06269-3037, USA;1. Department of Civil Engineering, Ryerson University, Toronto, ON, Canada;2. Department of Civil & Urban Engineering, New York University, New York, NY, USA;1. OECD, 75016 Paris, France;2. Technische Universität Bergakademie Freiberg, Lessingstr. 45, D-09599 Freiberg, Germany;3. Institute of Energy and Climate Research – Systems Analysis and Technology Evaluation, Forschungszentrum Jülich (IEK-STE), D-52425 Jülich, Germany;1. Department of Public Economics, Chair of Energy Sustainability and Barcelona Institute of Economics (IEB), University of Barcelona, Av/Diagonal 690, 08034 Barcelona, Spain;2. Department of Public Economics, Chair of Energy Sustainability and Barcelona Institute of Economics (IEB) University of Barcelona, Spain;3. GRIT, CREIP, Rovira i Virgili University, Spain |
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| Abstract: | We consider a periodic review inventory problem in which the purchasing cost exhibits a noticeable increase (deterministic or stochastic) in the second period and remains at the higher value for the remainder of the problem. (This simplification clarifies the nature of the myopic heuristic, but is not necessary for use of the heuristic in practice.) This results in a strategy that holds inventories due to speculation. We develop solution procedures to find the optimal inventory levels for both stationary and non-stationary demands. We establish that the problem with stochastic speculation behaves exactly like a problem with deterministic speculation with the same mean increase in price. We propose, based on the case of deterministic demands, simple myopic heuristics and study their effectiveness. We observe that these heuristics perform very well for exponential demands. However, for the case of uniform demands these heuristics are most effective when the increase in price is large compared to the holding cost. |
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