Service Level Constrained Inventory Systems
Yuchen Jiang, Cong Shi, Siqian Shen
Production and Operations Management · 2019 · Volume 28 · Issue 9
Abstract
Motivated by the importance of service quality in nowadays customer business environment, we focus on inventory optimization underprobabilistic service level constraints, namely, theαservice level (also known as the ready rate) or theβservice level (also known as the fill rate). Under service level constraints, we consider two canonical stochastic inventory models: (i) the classical inventory control model with backlogging and (ii) the remanufacturing inventory control model with random product returns. The random demands could be non-stationary, evolving and correlated over time. For each model, we first establish the optimality of generalized base-stock policies, and then propose a new approximation algorithm that admits a worst-case performance guarantee of 2. The core concept developed in this study is calledthe delayed forced holding and production cost, which is proven effective in dealing with service level constrained inventory systems. We also provide an efficient heuristic algorithm for the multi-item inventory system. Our extensive computational experiments show that the proposed algorithms perform within 2% of optimality.
Keywords
inventory, service level, remanufacturing, optimal policies, approximation algorithms
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