Approximation algorithms for capacitated stochastic inventory systems with setup costs
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Approximation algorithms.pdf
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Author(s)
Shi, Cong
Zhang, Huanan
Chao, Xiuli
Levi, Retsef
Date Issued
June 2014
Journal
Naval Research Logistics (NRL)
Publisher
Wiley Blackwell
Citation
Shi, Cong; Zhang, Huanan; Chao, Xiuli and Levi, Retsef. “Approximation Algorithms for Capacitated Stochastic Inventory Systems with Setup Costs.” Naval Research Logistics (NRL) 61, no. 4 (April 2014): 304–319. © 2014 Wiley Periodicals, Inc.
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Author's final manuscript
Abstract
We develop the first approximation algorithm with worst-case performance guarantee for capacitated stochastic periodic-review inventory systems with setup costs. The structure of the optimal control policy for such systems is extremely complicated, and indeed, only some partial characterization is available. Thus, finding provably near-optimal control policies has been an open challenge. In this article, we construct computationally efficient approximate optimal policies for these systems whose demands can be nonstationary and/or correlated over time, and show that these policies have a worst-case performance guarantee of 4. We demonstrate through extensive numerical studies that the policies empirically perform well, and they are significantly better than the theoretical worst-case guarantees. We also extend the analyses and results to the case with batch ordering constraints, where the order size has to be an integer multiple of a base load.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1002/nav.21584
