An approximate dynamic programming approach for a product distribution problem

This paper proposes an approximate dynamic programming-based method for optimizing the distribution operations of a company manufacturing a certain product in numerous plants and distributing it to different regional markets for sale. The production at each plant and in each time period follows a nonstationary stochastic process. The product can be stored at the plants or be shipped to a regional market to serve the random demand. The proposed solution method formulates the problem as a dynamic program and uses approximations of the value function. We develop a tractable procedure to compute the marginal worth of a unit of inventory at a production plant. This quantity is used to update the value function approximations in an iterative improvement scheme. We numerically show that our method yields high quality solutions. Contributed by the Supply Chains/Production-Inventory Systems Department