Evaluating Shortfall Distributions in Periodic Inventory Systems with Stochastic Correlated Demands and Leadtimes
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This paper addresses a multi-period production/inventory problem with multiple suppliers, where demand sizes and supplier lead time are stochastic and correlated. A discrete time, single item inventory system is considered, where inventory levels are reviewed periodically and managed using a base-stock policy. At the end of each period, a replenishment order is placed, which enters a queue at the buffer stage and is consequently forwarded to the first available supplier. This paper presents a mathematical model of this inventory system and computes optimal safety stock levels using matrix analytic techniques and the properties of phase type distributions. To account for the effect of order crossovers, which occur whenever replenishment orders do not arrive in the sequence in which they were placed, the inventory shortfall distribution is analyzed. A numerical study of a system with two suppliers is presented, where the proposed model is compared against other existing models.