Serial Supply Chain with Stochastic Demand and Negligible Fixed Ordering Costs

5 Serial Supply Chain with Stochastic Demand and Negligible Fixed Ordering Costs 

The approximation developed by Shang and Song (2003) uses echelon holding costs, as defined earlier, and starts from the optimal echelon N base-stock level, which—by the authors reference to Chen and Zheng (1994)— is given by computing the critical fractile 

Shang and Song demonstrate that approximate solutions can be found for each upstream echelon e 1,2. N - 1 in the serial supply chain from two easily computed newsvendor-type fractiles, Q] and 0 , which they prove to be 

from expressions (3.45) and (3.46), we can compute Sj = fbLT,y(0/) and S, = foLT, (0y), where is the cdf of the distribution of demand over the (nominal) lead time to replenish echelon , given by Lj= y U (not account- 

Computational experiments by Shang and Song (2003) indicate that rounding up from the raw average of Sj and S , as is done in expression (3.47), tends to produce solutions that are closer to the optimal solution, when the 

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