An Approximate Method for Integrated Stochastic Replenishment Planning with Supplier Selection

Abstract

A practical methodology for integrated stochastic replenishment planning with supplier selection is proposed for the single item inventory system. A rolling horizon strategy is adopted to implement the ordering decisions. Our method works in two stages. The first stage is a general black box stage that gives the minimum expected "coverage period" cost. The second stage uses a dynamic programming approach to compute the minimum expected cost for the rolling horizon. The proposed method is applicable for both stationary and non-stationary demand distributions and even for problems with minimum order quantity constraints. We also propose to examine the benefits of a dynamic supplier selection approach in comparison to selecting a common supplier. We conduct extensive numerical analyses on synthetic data sets for validation.