A Bound on the Cost of a Simple Policy in a Dual Sourcing Inventory System
By Sripad Devalkar, Sridhar Seshadri, Ganesh Janakiraman
Citation
Devalkar, Sripad., Seshadri, Sridhar., Janakiraman, Ganesh. (2020). A Bound on the Cost of a Simple Policy in a Dual Sourcing Inventory System .
Copyright
2020
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Abstract
We study the problem of managing an inventory system with two supply sources which differ in their lead times and unit prices. We consider a simple class of policies called Tailored Base-Surge Policies for managing this system. These policies order a constant amount in every period from the slow supplier and order up to a target level in every period from the faster supplier. We add
to this class the policy of sourcing exclusively from the slow supplier. We show that the ratio of the cost of the best policy within this class to the cost of the optimal policy (over all admissible policies) is bounded above by a constant, 1 + 1/√2, when the demand distribution is normal. We develop a new method for bounding the ratio and establish insights into the behavior of dual sourcing systems under a novel parametrization of costs.
to this class the policy of sourcing exclusively from the slow supplier. We show that the ratio of the cost of the best policy within this class to the cost of the optimal policy (over all admissible policies) is bounded above by a constant, 1 + 1/√2, when the demand distribution is normal. We develop a new method for bounding the ratio and establish insights into the behavior of dual sourcing systems under a novel parametrization of costs.
Professor Sripad Devalkar is an Associate Professor of Operations Management at the Indian School of Business (ISB). His research interests fall under two broad themes - agricultural operations and Non-profit and public sector operations. Within these thematic areas, he is interested in understanding issues related to supply chain management and how the interaction of operational, financial, and risk management decisions affect outcomes.
He teaches the core Operations Management course in the PGP programme at ISB, as well as, an elective course on Logistics and Supply Chain Management.
Sripad Devalkar