Analysis of an Inventory System with Limited Capacity and Advance Demand Information under Supply Uncertainty
Abstract
Increased cooperation between supply chain partners and information technology enabled firms to acquire advance demand information. This gives rise to the problem of finding effective inventory control policies under this information. We consider a periodic review, stochastic and capacitated inventory system where advance demand information is available and there is partial supply availability. We analyzed the finite horizon problem using a dynamic programming formulation. Under the assumption of Bernoulli type supply process, in which supply is either completely available or unavailable, we show the optimality of order-up-to type policies and characterize the behavior of optimal policies with respect to capacity, advance demand information and the planning horizon. For the partial availability case, we quantify the value of advance demand information and additional capacity with a numerical study, and show how the uncertainty in supply affects the optimal policy.
