Inventory Management Fall 2012 Friday 1:30 pm 4:00 pm Location: DeSanctis Seminar Room

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1 Inventory Management Fall 2012 Friday 1:30 pm 4:00 pm Location: DeSanctis Seminar Room Instructor: Kevin H. Shang Date: August 29, 2012 Course Description This course provides fundamental knowledge of inventory theories. Students will learn concepts and models for various inventory systems. These systems include single- and multi-location, and deterministic and stochastic inventory models. Common studied inventory policies, such as power-of-two, base-stock, batch-based, and time-based policies will be introduced and analyzed. While this course mainly focuses on centralized control (first best) models, several well-known decentralized models will be introduced and discussed at the end of the course. This is a lecture-based course. However, students are expected to read the course materials before the class and participate the class discussion. In addition, students are expected to take turns to discuss business articles related to inventory issues at the beginning of each class. Grading Policy Your final grade depends on the following items: (1) four take-home assignments, (2) midterm exam, (3) class presentation and (4) final exam. Note that some of the assignment questions require you writing codes. It is necessary to learn a computer language, such as C++ or Matlab, to complete these questions. Textbooks [Zipkin] Zipkin, P Foundation of Inventory Management [Porteus] Porteus, E. Stochastic Inventory Theory Other papers and book chapters; see course outline below.

2 Course Outline Class 1 (8/31) Class 2 (9/7) Class 3 (9/14) Topics: Overview of the course; Single-stage models EOQ Newsvendor Base-stock [Zipkin] , Introduction of Shang (2011), Tutorials in Operations Research, INFORMS pers/tutorial-2011-online-pp pdf Topics: Advanced single-stage model; stationary demand (r,q) and (r, nq) (s,s) [Zipkin] ; Zheng, Y. S On properties of stochastic inventory systems. Management Sci Federgruen, A., Y.S. Zheng Finding optimal (s,s) policies is about as simple as evaluating a single policy. Operations Research 39, Topics: Single-stage model; finite horizon Optimality of base-stock and (s,s) policies Markov modulated demand Section 2 of Clark, A. and H. Scarf Optimal policies for a multi-echelon inventory problem. Management Science 6, Karlin, S One stage inventory models with uncertainty. Chapter 8 in K. Arrow, S. Karlin, H. Scarf (eds.), Studies in the Mathematical Theory of Inventory and Production, Stanford, CA. Iglehart, D., S. Karlin Optimal policy for dynamic inventory process with nonstationary stochastic demands. Chapter 8 in K. Arrow, S. Karlin, H. Scarf (eds.), Studies in Applied Probabilty and Management Science, Stanford, CA. [Zipkin] [Porteus] 4.2, 7.1

3 Assignment 1 distributed Class 4 (9/21) ** Out of town (reschedule time) ** Topics: Multi-stage model; deterministic demand Power-of-two policies [Zipkin] Roundy, R %-effective integer-ratio lot sizing for one-warehouse multi-retailer systems. Management Sci Shang (2005), unpublished technical note pers/g pdf Chen, F Stationary policies in multiechelon inventory systems with deterministic demand and backlogging. Operations Research 46 S26-S34. Class 5 (9/28) Class 6 (10/5) Topics: Serial system with stochastic demand Base-stock policies Approximations [Zipkin] Chen, F Decentralized supply chains subject to information delays. Management Sci Chen, F., Y. S. Zheng Lower bounds for multiechelon stochastic inventory systems. Management Sci (For the first part of the optimality proof) Shang, K., J. S. Song. 2003a. Newsvendor bounds and heuristic for optimal inventory policies in serial supply chains. Management Sci In-Class Midterm Exam Muharremoglu, A., J. N. Tsitsiklis A Single-Unit Decomposition Approach to Multiechelon Inventory Systems. Operations Research Assignment 2 distributed

4 Class 7 (10/12) Topics: Serial system with stochastic demand (r,q) policies Lower bounds and approximations [Zipkin] Chen., F., Y. S. Zheng Lower bounds for multiechelon stochastic inventory systems. Management Sci K. Shang and J.-S. Song Supply chains with economies of scale: Bounds and approximations. Operations Research K. Shang Note: A simple heuristic for serial inventory systems with fixed order costs. Operations Research (10/13-10/17) No Class; Fall Break Class 8 (10/26) Topics: Distribution system with stochastic demand Base-stock policies [Zipkin] Axsater, S Simple solution procedures for a class of two-echelon inventory problems. Operations Research Graves, S A multi-echelon inventory model for a repairable item with one-for-one replenishment. Management Science Gallego, et al Bounds, heuristics, and approximations for distribution systems. Operations Research Class 9 (11/2) Topics: Distribution system and assembly system (r,q) policies [Zipkin] 8.4. Rosling, K Optimal inventory policies for assembly systems under random demands. Operations Research Asxater, S Exact and approximate evaluation of batch-ordering policies for two-level inventory systems. Operations Research

5 Class 10 (11/9) Topics: Serial system with nonstationary demand Optimal policy & approximations [Zipkin] 9.8- Clark, A. and H. Scarf Optimal policies for a multi-echelon inventory problem. Management Science 6, Shang, K Single-stage approximations for optimal policies in serial inventory systems with non-stationary demand. pers/finite%20time%20nv%20bounds%20nov pdf Assignment 3 distributed Class 11 (11/16) Topics: Time-based models Serial systems with (s,t) & (r,nq,t) policies Shang, K., S. Zhou Optimal and heuristic (r,nq,t) policiesin serial inventory systems with fixed costs. Operations Research pers/optimal%20and%20heuristic%20rnqt.pdf Shang, K., S. Zhou, G.-J. van Houtum Improving supply chain performance: real-time demand information and flexible deliveries. Manufacturing & Service Operations Management pers/shangzhouvanhoutum_msom_prepublication.p df (11/21-11/25) Thanksgiving Break Class 12 (11/30) Topics: Coordination mechanisms & potential research topics Lee, H., S. Whang Decentralized multi-echelon supply chains: Incentives and information. Management Sci

6 Chen, F Decentralized supply chains subject to information delays. Management Sci Cachon, G. P., P. H. Zipkin Competitive and cooperative inventory policies in a two-stage supply chain. Management Sci Shang, K., J.-S. Song, P. Zipkin Coordination mechanisms in decentralized serial inventory systems with batch ordering. Management Science pers/coordination%20with%20fixed%20costs.pdf Assignment 4 distributed TBA Final Exam