An efficient heuristic for inventory control when the customer is using a ( s, S) policy

Abstract

We consider a capacitated supply chain in which the supplier has the information of the ( s, S) policy used by the retailer as well as the end-customer demand distribution. For the resulting inventory control problem at the supplier, optimal policies and structural properties were presented by Gavirneni et al. (Management Sci. 45(1) (1999) 16). They detailed an efficient solution procedure for the uncapacitated problem and resorted to computationally expensive infinitesimal perturbation analysis (IPA) for the capacitated situation. In this paper, we study a heuristic, based on the uncapacitated solution, for the capacitated situation. A detailed computational study showed that this heuristic is very efficient in that the costs increased by only 3.3% on the average. The heuristic was especially effective at higher capacities, lower holding costs, and extreme values of demand variance.