Joint location-inventory problem with differentiated service levels using critical level policy

This paper analyzes the design of a distribution network for fast-moving items able to provide differentiated service levels in terms of product availability for two demand classes (high and low priority) using a critical level policy. The model is formulated as a MINLP with chance constraints for which we propose a heuristic to solve it. Although the heuristic does not guarantee an optimal solution, our computational experiments have shown that it provides good-quality solutions that are on average 0.8% and at worst 2.7% from the optimal solution.

[1]  G. D. Eppen.  Note---Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem , 1979 .

[2]  Mark S. Daskin,et al.  Capacitated warehouse location model with risk pooling , 2008 .

[3]  S. Axsäter.  Using the deterministic EOQ formula in stochastic inventory control , 1996 .

[4]  Zuo-Jun Max Shen,et al.  A Joint Location - Inventory Model , 2003, Transp. Sci..

[5]  Lawrence V. Snyder,et al.  The stochastic location model with risk pooling , 2007, Eur. J. Oper. Res..

[6]  Alper Atamtürk,et al.  A Conic Integer Programming Approach to Stochastic Joint Location-Inventory Problems , 2012, Oper. Res..

[7]  Yi Wang,et al.  Anticipated rationing policy for two demand classes under service level constraints , 2013, Comput. Ind. Eng..

[8]  Stephen D. Boyles,et al.  A three level location-inventory problem with correlated demand , 2014 .

[9]  Ahmad Makui,et al.  Applying queuing approach for a stochastic location-inventory problem with two different mean inventory considerations , 2016 .

[10]  P. Miranda,et al.  INCORPORATING INVENTORY CONTROL DECISIONS INTO A STRATEGIC DISTRIBUTION NETWORK DESIGN MODEL WITH STOCHASTIC DEMAND , 2004 .

[11]  Karen Donohue,et al.  A Threshold Inventory Rationing Policy for Service - Differentiated Demand Classes , 2003, Manag. Sci..

[12]  Zuo-Jun Max Shen,et al.  Trade-offs Between Customer Service and Cost in Integrated Supply Chain Design , 2005, Manuf. Serv. Oper. Manag..

[13]  Fernando Ordóñez,et al.  Critical level rationing in inventory systems with continuously distributed demand , 2017, OR Spectr..

[14]  R. Dekker,et al.  An Overview of Inventory Systems with Several Demand Classes , 1999 .

[15]  Ruud H. Teunter,et al.  Dynamic inventory rationing strategies for inventory systems with two demand classes, Poisson demand and backordering , 2008, Eur. J. Oper. Res..

[16]  Ulrich Wilhelm Thonemann,et al.  An optimal constant level rationing policy under service level constraints , 2010, OR Spectr..

[17]  Zuo-Jun Max Shen,et al.  Stochastic Transportation-Inventory Network Design Problem , 2005, Oper. Res..

[18]  G. D. Eppen.  EFFECTS OF CENTRALIZATION ON EXPECTED COSTS IN A MULTI-LOCATION NEWSBOY PROBLEMt , 2016 .

[19]  Yu-Sheng Zheng.  On properties of stochastic inventory systems , 1992 .

[20]  Donald Erlenkotter,et al.  A Dual-Based Procedure for Uncapacitated Facility Location , 1978, Oper. Res..

[21]  Z. Shen.  A multi-commodity supply chain design problem , 2005 .

[22]  Zuo-Jun Max Shen,et al.  An Inventory-Location Model: Formulation, Solution Algorithm and Computational Results , 2002, Ann. Oper. Res..

[23]  Jiazhen Huo,et al.  A heuristic for rationing inventory in two demand classes with backlog costs and a service constraint , 2013, Comput. Oper. Res..

[24]  Mark S. Daskin,et al.  Network and Discrete Location: Models, Algorithms and Applications , 1995 .

[25]  Gerrit K. Janssens,et al.  On the choice of a demand distribution for inventory management models , 2008 .

[26]  Graham K. Rand,et al.  Decision Systems for Inventory Management and Production Planning , 1979 .