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Scheller College of Business
Scheller College of Business
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ItemSingle Stage Heuristic for Perishable Inventory Control in Two-Echelon Supply Chains( 2006-09-16) Ferguson, Mark E. ; Lystad, Erik D. ; Alexopoulos, ChristosWe study the problem of determining stocking levels for fixed-life perishable products in a two-echelon supply chain. We consider both serial chains and distribution networks consisting of a warehouse and n non-identical retail locations. Inventory retains constant utility throughout its lifetime, lead-times are deterministic, there are no fixed ordering costs, and unmet demand is backlogged. Although an extensive literature exists for the nonperishable product case, the consideration of perishability significantly complicates the problem. For instance, a major complication is the need to track the age of inventory as well as its position in the supply chain, adding a dimension to the already burdensome state space of dynamic programming formulations. We provide accurate single-stage heuristics for determining the stocking levels for two-echelon supply chains. We use these heuristics to develop insight and intuition into the proper management of perishable inventory. Our heuristics are robust, easy-to-use, and simple enough to be implemented using spreadsheet applications.
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ItemWhere To Differentiate Your Product When Stocking Levels Are Coupled( 2006-03-08) Ferguson, Mark E. ; Lystad, Erik D.A critical assumption of Lee and Tang’s (1997) analysis of where in the production process a company should delay differentiation of its product is the independent treatment of installations in the production network. We show this “decoupling” approach gives rise to inaccuracies in assessing the value of delayed differentiation, frequently overestimating but also potentially underestimating the savings in inventory costs by failing to appropriately exploit the risk pooling effect. By doing so, we reveal a previously hidden factor in determining the optimal delayed differentiation strategy: the pattern of holding costs assessed for the various stages of work-in-process, which we refer to as the holding cost profile, plays an important role in the determination of the optimal strategy. Prior work has established the importance of the absolute holding cost at each stage in this decision but the relative holding costs are also important; as sharp increases in the local holding costs indicate potential cost reduction opportunities. Finally, we provide insight on the conditions when the decoupling assumption may lead to significant errors and cause a firm to make a costly mistake when determining where in the process to differentiate its product.
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ItemSimple Newsvendor Heuristics for Two-Echelon Distribution Networks( 2006-03-08) Ferguson, Mark E. ; Lystad, Erik D.We consider the problem of determining stocking levels in a multi-echelon distribution network consisting of a warehouse and n non-identical retail locations. Lead-times are deterministic, there are no fixed ordering costs, and unmet demand is backlogged. Both Clark and Scarf (1960) and Federgruen and Zipkin (1984b) propose heuristic solutions for such a problem based on a stochastic dynamic programming formulation. The disadvantage of their formulations lies in the very large state space needed for its solution. For a serial supply chains, Shang and Song (2003) provide single period newsvendor problems that bound the optimal stocking levels determined by the Clark and Scarf (1960) serial supply chain model. Newsvendor bounds have a number of valuable qualities; they are considerably less computationally intensive, allow for ready parametric analysis, and facilitate the development of intuition. In this paper, we extend the newsvendor bounds technique to distribution systems, thus providing a simple and surprisingly accurate heuristic. Through a simulation study, we show that our heuristic significantly outperforms other common heuristics over a wide range of parameter values. The closed form solutions provided by the newsvendor bounds also allows us to gain insights into the system behavior of a distribution network that was not previously possible through alternative solution techniques.
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ItemSimple Newsvendor Heuristics for Multiechelon Distribution Networks(Georgia Institute of Technology, 2005-05-05) Ferguson, Mark E. ; Lystad, Erik D.We consider the problem of determining optimal stocking levels in a multi-echelon distribution network consisting of m echelons and n non-identical terminal locations. Lead-times are deterministic, there are no fixed ordering costs, and unmet demand is backlogged. Both Clark and Scarf (1960) and Federgruen and Zipkin (1984b) propose heuristic solutions for such a problem based on a stochastic dynamic programming formulation. The disadvantage of their formulations lies in the very large state space needed for its solution. For serial supply chains, Shang and Song (2003) provide single period newsvendor problems that bound the optimal stocking levels determined by the Clark and Scarf (1960) serial supply chain model. Newsvendor bounds have a number of valuable qualities; they are considerably less computationally intensive, allow for ready parametric analysis, and facilitate the development of intuition. In this paper, we extend the newsvendor bounds technique to distribution systems, thus providing a simple and surprisingly accurate heuristic. Through a simulation study, we show that our heuristic significantly outperforms other common heuristics over a wide range of parameter values. The closed form solutions provided by the newsvendor bounds also allow insights into the system behavior of a distribution network that was not previously possible through alternative solution techniques.