Base-stock policy

The inventory of each item i is controlled by a base-stock policy, with Rj being the base-stock level. Since the end product consists of a single unit of each component, the base-stock policy implies that every demtmd will trigger simultaneously the production/replenishment of one unit of each component. Therefore, as in the model of Section 2.1, for each item /, the number of units in process at any time /, denoted Xj t), is equal to the number of jobs in service in an queue, for / =... 

Early works in the literature (e.g.. Scarf 1959, Karlin 1960 and Iglehart 1964) show that a state-dependent base stock policy structure is optimal. In other words, there exists a target level 1) so that it is optimal to order... 

A slightly different approach to the justification of myopic order-up-to policies was taken by Lee et al. (2000) and most recently by Dong and Lee (2001) Consider a base-stock policy and let + 7 be the myopic target level... 

When a myopic base-stock policy is applied to this case, the target level... 

To summarize, we propose a so-called MMSE forecast adaptive base-stock policy. This policy employs the Kalman filter technique to calculate minimum mean square error (MMSE) forecasts of future demands at the beginning of each period. A fixed safety stock 7 set at the beginning of the planning horizon, is then added to the MMSE forecast to form the target level /3t for this period. Then, the following rule is applied if the current inventory position is lower than the target level, an order is placed to fill this gap otherwise, no order is placed. The advantage of our policy is that it is intuitive and easily implementable. But, not less importantly, it can be tailored for use in information-rich supply chains, for which the characterization of optimal policies is virtually impossible. 

In his first model, named locally-managed inventory (LMI) system, Aviv (2002a) studies a supply chain structure in which the members of the supply chain do not share their observations of explanatory market signals (the J-variables). Inventory is managed according to the installation-based MMSE adaptive base-stock policy, with target levels... 

The upper bound (10.35) is based on a setting in which the supplier uses a base-stock policy, but with a very large negative target level (7 —00),... 

Example 3.15 Multi-echelon base-stock policies... 

One key prescription of the literature on the bullwhip effect is to centralize demand information so that demand forecasts are not inferred from the orders of the stage immediately downstream—the essence of the "demand forecast updating" (Lee et al., 1997b) cause of the bullwhip effect— but instead come directly from consumer sales data. Therefore, let us update our example to account for this. We will assume the same base-stock policy... 

In this study there are six non-parameterised strategies which are applied and evaluated in the SC model using simulation, including (1) JIT (lot-for-lot) (2) JIT (lot-for-lot) with safety stock (3) Kanban (fixed WIP) (4) Kanban (fixed WIP) + safety stock (5) VMl (based-stock policy) and (6) VMl (based-stock policy) with safety stock. The case company B s original strategy will also be evaluated and used as a base reference point. There are two fixed safety stock levels 20% and 30%. The reason for their choice is based on the consideration of inventory capacity, the raw material product cycle time and the financial flow information (from the interview discussions). 

Vendor management inventory/based-stock policy... 

This inventory management policy is a type of based-stock policy. The production decisions are made in the same way as the Kanban policy. The raw material procurement decisions are made based on the production plan and the raw material on-hand inventory and the finished goods on-hand inventory at each period. The difference between VMI policy and Kanban policy is that under VMl, the raw material procurement decision making also considers the information of the finished goods on-hand inventory level, as if a vendor is managing the inventory. In the system, the strategy has been represented as ... 

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