Understanding the Performance of Capped Base-Stock Policies in Lost-Sales Inventory Models

2019 ◽  
Author(s):  
Linwei Xin
Keyword(s):  
Base Stock ◽  
Lost Sales ◽  
Inventory Models ◽  
Base Stock Policies

Understanding the Performance of Capped Base-Stock Policies in Lost-Sales Inventory Models

2020 ◽  
Author(s):  
Linwei Xin
Keyword(s):  
Base Stock ◽  
Superior Performance ◽  
Lead Times ◽  
Lost Sales ◽  
Index Policy ◽  
Stock Level ◽  
New Family ◽  
Base Stock Policy ◽  
Stock Policy ◽  
Base Stock Policies

Single-sourcing lost-sales inventory systems with lead times are notoriously difficult to optimize. In this paper, we propose a new family of capped base-stock policies and provide a new perspective on constructing a practical hybrid policy combining two well-known heuristics: base-stock and constant-order policies. Each capped base-stock policy is associated with two parameters: a base-stock level and an order cap. We prove that for any fixed order cap, the capped base-stock policy converges exponentially fast in the base-stock level to a constant-order policy, providing a theoretical foundation for a phenomenon by which a capped dual-index policy converges numerically to a tailored base-surge policy recently observed in other work in a different but related dual-sourcing inventory model. As a consequence, there exists a sequence of capped base-stock policies that are asymptotically optimal as the lead time grows. We also numerically demonstrate its superior performance in general (including small lead times) by comparing it with otherwell-known heuristics.

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