Harry Groenevelt

Two algorithms for maximizing a separable concave function over a polymatroid feasible region

Abstract In this paper we present two new algorithms for maximizing a separable concave function on a polymatroid. Both algorithms apply to the discrete as well as the continuous version of the problem. The application of these algorithms to several types of polymatroids is discussed, and we show that the Decomposition Algorithm runs in polynomial time (in the discrete version) for network and generalized symmetric polymatroids, and the Bottom Up Algorithm (in the discrete version) runs in polynomial time when the polymatroid is given as an explicit list of constraints.

Using RFID for the management of pharmaceutical inventory - system optimization and shrinkage control

Motivated by a case study at a radiology practice, we analyze the incremental benefits of RFID technology over barcodes for managing pharmaceutical inventories. Unlike barcode technology, RFID enables accurate real-time visibility, which in turn enables several process improvements. We analyze the impact of automatic counting and discuss the system redesign critical to optimizing the inventory policy and eliminating shrinkage. We show that continuous review is superior to periodic review whenever accurate real-time information is available at no additional cost. We explain how RFID-enabled strategies vary with inventory parameters and provide a cost-benefit analysis for the implementation of RFID for the radiology practice.

Dynamic Revenue Management in Airline Alliances

Major airlines are selling increasing numbers of interline itineraries in which flights operated by two or more airlines are combined and sold together. One reason for this increase is the rapid growth of airline alliances, which promote the purchase of interline itineraries and, therefore, virtually extend the reach of each alliance members network. This practice, however, creates a difficult coordination problem: Each member of the alliance makes revenue management decisions to maximize its own revenue and the resulting behavior may produce suboptimal revenue for the alliance as a whole. Airline industry researchers and consultants have proposed a variety of static and dynamic mechanisms to control revenue management decisions across alliances (a dynamic mechanism adjusts its parameters as the number of available seats in the network changes and time passes). In this paper, we formulate a Markov game model of a two-partner alliance that can be used to analyze the effects of these mechanisms on each partners behavior. We begin by showing that no Markovian transfer pricing mechanism can coordinate an arbitrary alliance. Next, we examine three dynamic schemes as well as three forms of the static scheme widely used in practice. We derive the equilibrium acceptance policies under each scheme and use analytical techniques as well as numerical analyses of sample alliances to generate fundamental insights about partner behavior under each scheme. The analysis and numerical examples also illustrate how certain transfer price schemes are likely to perform in networks with particular characteristics.

Continuous Review Inventory Model with Dynamic Choice of Two Freight Modes with Fixed Costs

We analyze a continuous review (Q, r) stochastic inventory model in which orders placed with a make-to-order manufacturer can be shipped via two alternative freight modes differing in lead time and costs. The costs of placing an order and using each freight mode consist of fixed components and hence exhibit economies of scale. We derive an optimal policy for using the two freight modes for shipping each order. This freight-mode decision is delayed until manufacturing is complete and the optimal policy uses information about the demand incurred in the meantime. Furthermore, given that the two freight modes are used optimally for shipping each order, we solve our model for reorder point and order quantity that minimizes cost. We analyze the cost savings achieved from postponing the freight-mode decision and provide analytical and numerical comparisons between the solutions to our two-freight model and single-freight models. Finally, we illustrate the properties of the solution to our model using an extensive set of numerical examples.

End-of-Period vs. Continuous Accounting of Inventory-Related Costs

This paper investigates the effect of using an end-of-period accounting scheme for inventory-related costs when costs actually accrue in continuous time. Using a simple model, we show that (i) the end-of-period scheme results in higher than optimal order-up-to levels and inventory cost if the cost and demand parameters are unchanged, and (ii) it is possible to replicate both the optimal base-stock level and its cost by selecting the values of the cost or demand parameters judiciously. The cost adjustments often require extreme values, and no systematic cost parameter adjustment scheme is robust. However, we find a systematic adjustment to the demand parameters that serves as a good approximation and is robust. We therefore conclude that end-of-period cost accounting without parameter adjustments is in general inappropriate when costs are incurred continuously, but there are adjustments that can make it work well.

Efficient Inventory Management by Leveraging RFID in Service Organizations

RFID provides real-time tracking, resulting in two additional benefits as an information technology. When inventory is inaccurate and real-time tracking is not available organizations have to use a periodic review policy. When inventory is accurate and realtime tracking is available, they may switch to a continuous review policy. Based on a case study in a radiology practice, we compare the operational and economic differences between a system that uses barcode technology and periodic review, and one that uses RFID technology and continuous review. While the first switch from barcode to RFID is a technology improvement providing automatic counting, the second switch from periodic to continuous review is a process innovation. We measure the value of automatic counting, process innovation, and the total of the two, (the value of RFID). We also explain how these benefits change with service level, lead time, demand, etc.

Chapter 12 The just-in-time system

Publisher Summary This chapter presents an overview of Just-in-Time (JIT). There are two keys to JIT supplier logistics: taking control of inbound deliveries and establishing quick feed-back loops. Various models have been proposed to investigate the improvement and learning processes the JIT system seeks to foster. To maximize the probability of success of a JIT program, it is also necessary to put proper incentive systems in place that encourage employees and management to implement the desired changes, and to redefine areas of responsibility throughout the organization. The purchasing firm also attempts to level its production schedule to make JIT deliveries possible without significant buffer inventories. The extension of JIT across firms thus creates mutual dependencies between supplier and customer, and hence incentives to cooperate to resolve problems and increase efficiency. Geographical distance between supplier and customers limits the potential for achieving JIT deliveries. A customized JIT program will have to be designed to fit the particular circumstances of an organization, and a cost/benefit analysis may indicate that JIT is not appropriate.

Vendor managed inventory contracts – coordinating the supply chain while looking from the vendor’s perspective

Abstract The paper studies coordination of a supply chain when the inventory is managed by the vendor (VMI). We also provide a general mathematical framework that can be used to analyze contracts under both retailer managed inventory (RMI) and VMI. Using a simple newsvendor scenario with a single vendor and single retailer, we study five popular coordinating supply chain contracts: buyback, quantity flexibility, quantity discount, sales rebate, and revenue sharing contracts. We analyze the ability of these contracts to coordinate the supply chain under VMI when the vendor freely decides the quantity. We find that even though all of them coordinate under RMI, quantity flexibility and sales rebate contracts do not generally coordinate under VMI. Furthermore, buyback and revenue sharing contracts are equivalent. Hence, we propose two new contracts which coordinate under VMI (one of which coordinates under RMI too, provided a well-known assumption holds). Finally, we extend our analysis to consider multiple independent retailers with the vendor incurring linear or convex production cost, and show that our results are qualitatively unchanged.