Fall 2002

ME/IE 8773-8774

Periodic-Review Inventory Systems Under Supply Capacity Contract

by

Xiuli Chao
Professor of Industrial Engineering
Co-Director of Interdisciplinary Operations Research Programs
North Carolina State University
Raleigh, NC 27695

Wednesday, October 23, 2002
3:30-4:30 p.m.
Room 108 ME
Broadcast on UNITE Channel A
Coffee and cookies will be available in 125 ME following the seminar

Motivated by the practice of transportation contracts in the modern era, we study periodic-review inventory control models with ordering cost c(x)=cx +K 1[x>R], i.e. the ordering is cx if the ordering quantity is not over its quota R, and K+cx if the ordering quantity is over quota, where K is a setup cost for working out additional contract terms such as additional truck and processing fees, etc. This ordering cost function is neither convex nor concave, and the classical periodic-review inventory model with setup cost is a special case with R=0. We show that the optimal policy is a refined (s,S) policy. We apply this result to a production control problem under supply crisis where the supplier provides an incentive for the manufacturer to not exceed a certain quota.

Xiuli Chao is a professor in the Industrial Engineering Department at North Carolina State University and he is also the co-director of Interdisciplinary Operations Research Program at NCSU. His research interest includes queueing, scheduling, optimal control, financial engineering, and supply chain management. He is the co-author of Operations Scheduling with Applications in Manufacturing and Services (Irwin/McGraw-Hill, 1998), and Queueing Networks: Customers, Signals, and Product Form Solutions (John Wiley & Sons, 1999). He is a department editor for IIE Transactions, and associate editor for Naval Research Logistics, Operations Research, Queueing Systems (QUESTA), Journal of Systems Science and Complexity, and Operations Research Letters, and he is also on the editorial board for Probability in the Engineering and Informational Sciences. Chao received his doctoral degree in Operations Research from Columbia University in 1989, and in 1998 he received the Erlang prize from the Applied Probability Society of INFORMS.

Informal Faculty Luncheon: Wednesday, October 23, 2002, 12:00 noon. Meet in 1100 ME and go with other faculty to lunch. Prof. Chao will be able to attend.