Data-Driven Algorithms for Two-Location Inventory Systems

Abstract

In this paper, we consider a multiperiod, two-location inventory system with unknown demand distributions and perishable products. Products can be transshipped from the location with excess inventory to the other with excess demand to better fulfill customer demand. The demand distributions are assumed to follow a family of parametric distributions and can only be learned on the fly. To address the challenge, we propose a data-driven inventory management algorithm called DD2LI that achieves a good performance in terms of regret. This algorithm, DD2LI, employs maximum likelihood estimation to approximate the unknown parameter and determines the order quantity based on these estimations. In addition, we emphasize a key assumption that tightens regret bound. Finally, we test the effectiveness of our proposed algorithm by conducting numerical experiments for two scenarios.