Inventory Control with Generalized Expediting

We consider a single-item, periodic review inventory control problem where discrete stochastic demand must be satisfied. When shortages occur, the unmet demand must be filled by some form of expediting. We allow a very general form for the cost structure of expediting. This expediting might include in-house rush production, outsourcing, or even lost sales. However, we explicitly consider the case where expedited production is allowed to produce up to a positive inventory level. For the infinite horizon discounted problem, we characterize the structure of the optimal expediting policy and show that an (s, S) policy is optimal for regular production. In certain cases we demonstrate that it may indeed be optimal to use expedited production to build up inventory. A heuristic for policy calculation is given; a numerical study tests the heuristic and add insight into the results. 

• Type: Journal
• Year: 2010
• Where: IOR
• Authors: Eric Logan Huggins, Tava Lennon Olsen
• Keywords: Expediting, Inventory Control Problem, IOR 2010, Optimal Expediting Policy