Technical Note—A Permutation-Dependent Separability Approach for Capacitated Two-Echelon Inventory Systems

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Author(s)

Detail(s)

Original languageEnglish
Number of pages16
Journal / PublicationOperations Research
Online published19 Nov 2021
Publication statusOnline published - 19 Nov 2021

Abstract

We consider optimal inventory replenishment policies for capacitated 2-echelon serial inventory systems, where the capacity of upstream echelon can be the bottleneck. We show that the optimal replenishment decisions in each period can be made one echelon at a time by introducing a procedure that can sequentially decompose a multidimensional optimization problem to a series of one-dimensional problems. We also introduce the notion of permutation-dependent separability. A permutation-dependent separable function is a function that can be decomposed as a sum of single-variable component functions under each nondecreasing order of variables. We find that the value function for the capacitated 2-echelon system in each period is permutation-dependent separable, and that, for each echelon, a permutation-dependent echelon base stock policy is optimal.

Research Area(s)

  • capacitated serial system, permutation-dependent separability, optimal replenishment policy