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55
Value of Information in Capacitated Supply Chains
 Management Science
, 1996
"... We incorporate information flow between a supplier and a customer in a twoechelon model that captures the capacitated setting of a typical supply chain. We consider three situations: (1) a traditional model where there is no information to the supplier prior to a demand to him except from past d ..."
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Cited by 91 (3 self)
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We incorporate information flow between a supplier and a customer in a twoechelon model that captures the capacitated setting of a typical supply chain. We consider three situations: (1) a traditional model where there is no information to the supplier prior to a demand to him except from past data; (2) the supplier has the information of the (s,S) policy used by the customer as well as the endproduct demand distribution; and (3) the supplier has full information about the state of the customer. We show that order upto policies continue to be optimal for models with information flow for the finite horizon, the infinite horizon discounted and the infinite horizon average cost cases. We develop solution procedures to compute the optimal parameters. Study of these three models enables us to understand the relationships between capacity, inventory and information at the supplier level and how they are affected by customer S \Gamma s values and enditem demand distribution. We...
Optimizing strategic safety stock placement in supply chains
 Manufacturing and Service Operations Management
, 2000
"... Manufacturing managers face increasing pressure to reduce inventories across the supply chain. However, in complex supply chains it is not always obvious where to hold safety stock to minimize inventory costs and provide a high level of service to the final customer. In this paper we develop a frame ..."
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Cited by 63 (14 self)
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Manufacturing managers face increasing pressure to reduce inventories across the supply chain. However, in complex supply chains it is not always obvious where to hold safety stock to minimize inventory costs and provide a high level of service to the final customer. In this paper we develop a framework for modeling safety stock in a supply chain that is subject to demand or forecast uncertainty. Key assumptions are that we can model the supply chain as a network, that each stage in the supply chain operates with a periodic–review basestock policy, that demand is bounded and that there is a guaranteed service time between every stage and its customers. We develop an optimization algorithm for the placement of strategic safety stock for supply chains that can be modeled as spanning trees. As a partial validation of the model, we describe its successful application by product flow teams at Eastman Kodak. We discuss how the model has been used to reduce finished goods inventory, target cycle time reduction efforts and rationally size component inventories. We conclude with a list of needs to enhance the utility of the model. Page 3 of 59 1.
Newsvendor Networks: Inventory Management and Capacity Investment with Discretionary Activities
, 2002
"... We introduce a class of models, called newsvendor networks, that allow for multiple products and multiple processing and storage points and investigate how their singleperiod properties extend to dynamic settings. Such models provide a parsimonious framework to study various problems of stochastic ..."
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Cited by 44 (7 self)
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We introduce a class of models, called newsvendor networks, that allow for multiple products and multiple processing and storage points and investigate how their singleperiod properties extend to dynamic settings. Such models provide a parsimonious framework to study various problems of stochastic capacity investment and inventory management, including assembly, commonality, distribution, flexibility, substitution and transshipment. Newsvendor networks are stochastic models with recourse that are characterized by linear revenue and cost structures and a linear inputoutput transformation. While capacity and inventory decisions are locked in before uncertainty is resolved, some managerial discretion remains via expost inputoutput activity decisions. Expost decisions involve both the choice of activities and their levels and can result in subtle benefits. This discretion in choice is captured through alternate or "nonbasic" activities that can redeploy inputs and resources to best respond to resolved uncertain events. Nonbasic activities are never used in a deterministic environment; their value stems from discretionary flexibility to meet stochastic demand deviations from the operating point. The optimal capacity and inventory decisions balance overages with underages. Continuing the classic newsvendor analogy, the optimal balancing conditions can be interpreted as
Optimal commodity trading with a capacitated storage asset
 MANAGEMENT SCIENCE
, 2009
"... This paper considers the so called warehouse problem with both space and injection/withdrawal capacity limits. This is a foundational problem in the merchant management of assets for the storage of commodities, such as energy sources and natural resources. When the commodity spot price evolves accor ..."
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Cited by 27 (8 self)
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This paper considers the so called warehouse problem with both space and injection/withdrawal capacity limits. This is a foundational problem in the merchant management of assets for the storage of commodities, such as energy sources and natural resources. When the commodity spot price evolves according to an exogenous Markov process, this work shows that the optimal inventory trading policy of a risk neutral merchant is characterized by two stage and spot price dependent basestock targets. Under some assumptions, these targets are monotone in the spot price and partition the available inventory and spot price space in each stage into three regions, where it is respectively optimal to buy and inject, do nothing, and withdraw and sell. In some cases of practical importance, one can easily compute the optimal basestock targets. The structure of the optimal policy is nontrivial because in each stage the merchant’s qualification of high (selling) and low (buying) commodity prices in general depends on the merchant’s inventory availability. This is a consequence of the interplay between the capacity and space limits of the storage asset and brings to light the nontrivial nature of the interface between trading and operations. A computational analysis based on natural gas data shows that mismanaging this interface can yield significant value losses. Moreover, adapting the merchant’s optimal trading policy to the spot price stochastic evolution has substantial value. This value can be almost entirely generated by reacting to the unfolding of price uncertainty; that is, by sequentially reoptimizing a model that ignores this source of uncertainty.
Analysis of a decentralized productioninventory system. Working paper, Sloan School of Management,
, 1999
"... W e model an isolated portion of a competitive supply chain as a M/M/1 maketostock queue. The retailer carries finished goods inventory to service a Poisson demand process, and specifies a policy for replenishing his inventory from an upstream supplier. The supplier chooses the service rate, i.e., ..."
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Cited by 23 (0 self)
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W e model an isolated portion of a competitive supply chain as a M/M/1 maketostock queue. The retailer carries finished goods inventory to service a Poisson demand process, and specifies a policy for replenishing his inventory from an upstream supplier. The supplier chooses the service rate, i.e., the capacity of his manufacturing facility, which behaves as a singleserver queue with exponential service times. Demand is backlogged and both agents share the backorder cost. In addition, a linear inventory holding cost is charged to the retailer, and a linear cost for building production capacity is incurred by the supplier. The inventory level, demand rate, and cost parameters are common knowledge to both agents. Under the continuousstate approximation where the M/M/1 queue has an exponential rather than geometric steadystate distribution, we characterize the optimal centralized and Nash solutions, and show that a contract with linear transfer payments replicates a costsharing agreement and coordinates the system. We also compare the total system costs, the agents' decision variables, and the customer service levels of the centralized versus Nash versus Stackelberg solutions. (MaketoStock Queue; Game Theory )
Optimal Policies for a Capacitated TwoEchelon Inventory System
, 2004
"... This paper demonstrates optimal policies for capacitated serial multiechelon production/inventory systems. Extending the Clark and Scarf (1960) model to include installations with production capacity limits, we demonstrate that a modified echelon basestock policy is optimal in a twostage system wh ..."
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Cited by 20 (2 self)
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This paper demonstrates optimal policies for capacitated serial multiechelon production/inventory systems. Extending the Clark and Scarf (1960) model to include installations with production capacity limits, we demonstrate that a modified echelon basestock policy is optimal in a twostage system when there is a smaller capacity at the downstream facility. This is shown by decomposing the dynamic programming value function into value functions dependent upon individual echelon stock variables. We show that the optimal structure holds for both stationary and nonstationary stochastic customer demand. Finitehorizon and infinitehorizon results are included under discountedcost and averagecost criteria.
Coordination mechanisms of supply chain systems
, 2007
"... Supply chain management (SCM) has become an important management paradigm. As supply chain members are often separate and independent economic entities, a key issue in SCM is to develop mechanisms that can align their objectives and coordinate their activities so as to optimize system performance. I ..."
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Cited by 18 (0 self)
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Supply chain management (SCM) has become an important management paradigm. As supply chain members are often separate and independent economic entities, a key issue in SCM is to develop mechanisms that can align their objectives and coordinate their activities so as to optimize system performance. In this paper, we provide a review of coordination mechanisms of supply chain systems in a framework that is based on supply chain decision structure and nature of demand. This framework highlights the behavioral aspects and information need in the coordination of a supply chain. The identification of these issues points out several directions of future research in this area.
Safety Stock Positioning in Supply Chains with Stochastic Lead Times
, 2005
"... We study the safety stock positioning problem in singleproduct multistage supply chains with tree networkstructures, where each stage controls its inventory using an installation continuoustime basestock policy. External demands follow independent Poisson processes, and unsatisfied demands at eac ..."
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Cited by 17 (6 self)
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We study the safety stock positioning problem in singleproduct multistage supply chains with tree networkstructures, where each stage controls its inventory using an installation continuoustime basestock policy. External demands follow independent Poisson processes, and unsatisfied demands at each stage are fully backordered. The processing (e.g., production) cycle times and transportation lead times are assumed to be stochastic, sequential, and exogenously determined. We derive recursive equations for the backorder delays (because of stockout) at all stages in the supply chain. Based on the recursive equations, we characterize the dependencies of the backorder delays across different stages in the network, and develop insights into the impact of safety stock positioning in various supply chain topologies. We present approximations and algorithms to coordinate the basestock levels in these supply chains, so as to minimize systemwide inventory cost subject to meeting certain servicelevel requirements of the external customers.
Provably nearoptimal samplingbased policies for stochastic inventory control models
 Proceedings, 38th Annual ACM Symposium on Theory of Computing
, 2006
"... In this paper, we consider two fundamental inventory models, the singleperiod newsvendor problem and its multiperiod extension, but under the assumption that the explicit demand distributions are not known and that the only information available is a set of independent samples drawn from the true ..."
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Cited by 16 (2 self)
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In this paper, we consider two fundamental inventory models, the singleperiod newsvendor problem and its multiperiod extension, but under the assumption that the explicit demand distributions are not known and that the only information available is a set of independent samples drawn from the true distributions. Under the assumption that the demand distributions are given explicitly, these models are wellstudied and relatively straightforward to solve. However, in most reallife scenarios, the true demand distributions are not available or they are too complex to work with. Thus, a samplingdriven algorithmic framework is very attractive, both in practice and in theory. We shall describe how to compute samplingbased policies, that is, policies that are computed based only on observed samples of the demands without any access to, or assumptions on, the true demand distributions. Moreover, we establish bounds on the number of samples required to guarantee that with high probability, the expected cost of the samplingbased policies is arbitrarily close (i.e., with arbitrarily small relative error) compared to the expected cost of the optimal policies which have full access to the demand distributions. The bounds that we develop are general, easy to compute and do not depend at all on the specific demand distributions.