Management Science and Information Systems' Seminar（2017-11）

Topic: Dynamic Inventory Management with Total Minimum Order Commitments and Two Supply Options

Speaker: Xiting Gong, The Chinese University of Hong Kong

Time: Thursday, July 6th, 10:00-11:30 a.m

Place: Room 217, Guanghua Building 2

Abstract:

We study optimal policies for dual-supply inventory systems where a firm commits to buying a total minimum quantity from both supplies or two separate total minimum quantities from each supply over a finite planning horizon. The two supply options differ in their costs and lead times. For the system under the joint commitment, the optimal policy has a simple structure and can be fully characterized by three critical numbers in each period. For the system under the separate commitments, we show that the optimal order quantities in each period are monotonic in the starting inventory and the remaining commitments with bounded sensitivity. Moreover, we establish convergence results on the optimal order quantities when the committed quantity from either supply approaches infinity. These findings highlight the effects of order commitments on the optimal inventory policies. Based on these results, we develop a simple heuristic for the system under separate commitments and show numerically that it performs very well. The numerical study further shows that the firm could incur a considerable loss if it ignores or overemphasizes the order commitments when managing its inventory. Finally, we conduct numerical analysis to derive insights into the firm’s supply contract selection in the presence of minimum order commitments. This is joint work with Tong Wang and Sean X. Zhou.

Introduction:

Dr. Gong is an assistant professor in the Department of Systems Engineering and Engineering Management at The Chinese University Hong Kong. Prior to joining CUHK, he worked as a postdoctoral research fellow in The University of Michigan, Ann Arbor. He received his Bachelor’s degree in Applied Mathematics, and Master’s and PhD degrees in Management Science, all from Peking University. His research area is logistics and supply chain management; and his recent research interests include stochastic inventory theory and applications, pricing and revenue management, and approximation and data-driven algorithms. He has published several papers in leading academic journals such as Operations Research, Production and Operations Management, and Naval Research Logistics.

http://www.se.cuhk.edu.hk/people/xtgong.html

Your participation is warmly welcomed!