Inventory Control System for a Healthcare Apparel Service Centre with Stockout Risk: A Case Analysis

Based on the real-world inventory control problem of a capacitated healthcare apparel service centre in Hong Kong which provides tailor-made apparel-making services for the elderly and disabled people, this paper studies a partial backordered continuous review inventory control problem in which the product demand follows a Poisson process with a constant lead time. The system is controlled by an (Q,r) inventory policy which incorporate the stockout risk, storage capacity, and partial backlog. The healthcare apparel service centre, under the capacity constraint, aims to minimize the inventory cost and achieving a low stockout risk. To address this challenge, an optimization problem is constructed. A real case-based data analysis is conducted, and the result shows that the expected total cost on an order cycle is reduced substantially at around 20% with our proposed optimal inventory control policy. An extensive sensitivity analysis is conducted to generate additional insights.

[1]  G. Gallego.  New Bounds and Heuristics for ( Q , r ) Policies , 1998 .

[2]  L. Ouyang,et al.  An integrated vendor–buyer inventory model with quality improvement and lead time reduction , 2007 .

[3]  Jing-Sheng Song,et al.  The Effect of Lead Time and Demand Uncertainties in (r, q) Inventory Systems , 2010, Oper. Res..

[4]  Rolf Forsberg,et al.  Exact evaluation of (R, Q)-policies for two-level inventory systems with Poisson demand , 1997 .

[5]  Paul H. Zipkin,et al.  Inventory Models with Continuous, Stochastic Demands , 1991 .

[6]  Dean H. Kropp,et al.  Effective and simple EOQ-like solutions for stochastic demand periodic review systems , 2007, Eur. J. Oper. Res..

[7]  B. Eddy Patuwo,et al.  A partial backorder control for continuous review (r, Q) inventory system with poisson demand and constant lead time , 1995, Comput. Oper. Res..

[8]  Clara Bassano,et al.  A VSA-SS Approach to Healthcare Service Systems: The Triple Target of Efficiency, Effectiveness and Sustainability , 2010 .

[9]  Tong Wang,et al.  On the time-window fulfillment rate in a single-item min-max inventory control system , 2005 .

[10]  A. Lau,et al.  The newsstand problem: A capacitated multiple-product single-period inventory problem , 1996 .

[11]  Sven Axsäter,et al.  Evaluation of Installation Stock Based (R, Q)-Policies for Two-Level Inventory Systems with Poisson Demand , 1998, Oper. Res..

[12]  Sven Axsäter,et al.  Exact Analysis of Continuous Review (R, Q) Policies in Two-Echelon Inventory Systems with Compound Poisson Demand , 2000, Oper. Res..

[13]  R. Freund,et al.  Tractable ( Q, R ) heuristic models for constrained service levels , 1997 .

[14]  Candace Aria Yano,et al.  Setting Planned Leadtimes in Serial Production Systems with Tardiness Costs , 1987 .

[15]  Kyung S. Park,et al.  (Q, r) Inventory Model with a Mixture of Lost Sales and Time-Weighted Backorders , 1985 .

[16]  Kripa Shanker,et al.  Two-echelon supply chain inventory model with controllable lead time and service level constraint , 2009, Comput. Ind. Eng..

[17]  Jian Li,et al.  Mean Variance Analysis of Fast Fashion Supply Chains With Returns Policy , 2014, IEEE Transactions on Systems, Man, and Cybernetics: Systems.

[18]  David D. Yao,et al.  Analysis and Optimization of a Multistage Inventory-Queue System , 2004, Manag. Sci..

[19]  Lawrence M. Wein,et al.  Due-date Setting and Priority Sequencing in a Multiclass M/G/1 Queue , 2015 .

[20]  D. Montgomery,et al.  INVENTORY MODELS WITH A MIXTURE OF BACKORDERS AND LOST SALES. , 1973 .

[21]  Mohamed Ben-Daya,et al.  Integrated inventory and inspection policies for stochastic demand , 2008, Eur. J. Oper. Res..

[22]  Poul Alstrøm,et al.  Numerical computation of inventory policies, based on the EOQ/σx value for order-point systems , 2001 .

[23]  K. Moinzadeh.  Operating characteristics of the ( S -1, S ) inventory system with partial backorders and constant resupply times , 1989 .

[24]  Awi Federgruen,et al.  An Efficient Algorithm for Computing an Optimal (r, Q) Policy in Continuous Review Stochastic Inventory Systems , 1992, Oper. Res..

[25]  Edward A. Silver,et al.  Operations Research in Inventory Management: A Review and Critique , 1981, Oper. Res..

[26]  Paul Glasserman,et al.  Leadtime-Inventory Trade-Offs in Assemble-to-Order Systems , 1998, Oper. Res..

[27]  Patrick S. Chen,et al.  Improved inventory models with service level and lead time , 2005, Comput. Oper. Res..

[28]  J. Bertrand.  The Effect of Workload Dependent Due-Dates on Job Shop Performance , 1983 .

[29]  Avijit Banerjee,et al.  An inventory model with partial backordering and unit backorder cost linearly increasing with the waiting time , 2009, Eur. J. Oper. Res..

[30]  Jing-Sheng Song,et al.  Price, delivery time guarantees and capacity selection , 1998, Eur. J. Oper. Res..

[31]  Gang Yu,et al.  Near-optimal (r,Q) policies for a two-stage serial inventory system with Poisson demand , 2011 .

[32]  Emre Berk,et al.  Analysis of the (Q, r) Inventory Model for Perishables with Positive Lead Times and Lost Sales , 2008, Oper. Res..

[33]  Sven Axsäter,et al.  Exact and Approximate Evaluation of Batch-Ordering Policies for Two-Level Inventory Systems , 1993, Oper. Res..

[34]  H-S Lau,et al.  Convenient expressions for computing the exact annual cost of a continuous-review (Q,R) system with backordering , 2002, J. Oper. Res. Soc..

[35]  T. C. Edwin Cheng,et al.  Evolutionary Location and Pricing Strategies in Competitive Hierarchical Distribution Systems: A Spatial Agent-Based Model , 2014, IEEE Transactions on Systems, Man, and Cybernetics: Systems.

[36]  John A. Buzacott,et al.  Safety stock versus safety time in MRP controlled production systems , 1994 .

[37]  W. Hopp,et al.  Quoting Customer Lead Times , 1995 .

[38]  Brian G. Kingsman,et al.  Production, Manufacturing and Logistics Modelling and computing (R n ,S n ) policies for inventory systems with non-stationary stochastic demand , 2005 .

[39]  Suresh Kumar Goyal,et al.  Joint replenishment inventory control: Deterministic and stochastic models , 1989 .

[40]  Sven Axsäter,et al.  A New Decision Rule for Lateral Transshipments in Inventory Systems , 2003, Manag. Sci..

[41]  Özalp Özer,et al.  Inventory Control with Limited Capacity and Advance Demand Information , 2004, Oper. Res..

[42]  G. P. Zhang,et al.  A Hybrid Inventory System with a Time Limit on Backorders , 2003 .

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

[44]  Wen-Chuan Lee,et al.  Computational algorithm for inventory model with a service level constraint, lead time demand with the mixture of distributions and controllable negative exponential backorder rate , 2006, Appl. Math. Comput..