Approximate order-up-to policies for inventory systems with binomial yield

Wanrong Ju, Adriana F. Gabor, Jan C.W. van Ommeren

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This paper studies an inventory policy for a retailer who orders his products from a supplier whose deliveries only partially satisfy the quality requirements. We model this situation by an infinite-horizon periodic-review model with binomial random yield and positive lead time. We propose an order-up-to policy based on approximating the inventory model with unreliable supplier by a model with a reliable supplier and suitably modified demand distribution. The performance of the order-up-to policy is verified by comparing it with both the optimal policy and a safety stock policy proposed in the literature. Further, we extend our approximation to a dual sourcing model with one slow, unreliable and one fast, fully reliable supplier. Compared to the dual-index order-up-to policy for the model with full information on the yield, the proposed approximation gives promising results.
Original languageUndefined
Place of PublicationEnschede
PublisherUniversity of Twente, Department of Applied Mathematics
Number of pages25
Publication statusPublished - Dec 2013

Publication series

PublisherUniversity of Twente, Department of Applied Mathematics
ISSN (Print)1874-4850
ISSN (Electronic)1874-4850


  • METIS-300259
  • EWI-24193
  • IR-88495
  • Order-up-to policy
  • Yield uncertainty
  • Inventory management

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