Applications of Stochastic Orders and Stochastic Functions in Inventory and Pricing Problems

Feng, Qi; Shanthikumar, J. George

doi:10.1111/poms.13629

Cited by 9 publications

(9 citation statements)

References 52 publications

(167 reference statements)

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“…Through empirical evidence of testing the newly developed probabilistic hybrid inventory model, this study adds hybrid probabilistic inventory models to the limited set of antecedents for supply chain cost-reducing models for healthcare. It extends inventory ordering decision models beyond the conventional deterministic optimization thinking (Wicks et al, 2006;Yao et al, 2012;Feng and Shanthikumar, 2022).…”

Section: Discussionmentioning

confidence: 99%

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Strategies for reducing healthcare supply chain inventory costs

Essila

2022

BIJ

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PurposeThis study aims to identify empirically proven strategies for reducing healthcare supply chain inventory costs.Design/methodology/approachThe author conducted in-depth interviews in 80 hospitals covering different supply chains. The author treated the healthcare firm as the unit of analysis and examined Vrat's taxonomy of inventory models based on the static and dynamic complexity theories of inventory models to identify an appropriate approach. The author addressed 33 highly priced and moderately priced stock-keeping units from 1,432 items and test several inventory policies. Next, the author applied combinations of inventory models, testing probabilistic hybrid inventory models.FindingsThe study finds that medical supplies, equipment, and medications are indispensable for a quality healthcare system. Hence, healthcare supply chain management (SCM) professionals must adopt basic inventory cost-reduction strategies, implementing inventory software functionalities effectively and efficiently. This study shows that probabilistic hybrid inventory techniques in healthcare SCM effectively determine an optimal stocking level, significantly reducing costs.Research limitations/implicationsThis study analyzes data from primary care and (to some extent) secondary care institutions. Although tertiary and quaternary care systems do not represent a large portion of the healthcare system, future research should also address these highly specialized organizations' needs.Practical implicationsThis study proposes practical strategies to help continuously improve supply chain operations in healthcare organizations worldwide.Originality/valueThis study suggests probabilistic hybrid inventory models as empirically proven solutions for evaluating stock-keeping units in the healthcare sector. In doing so, the study provides a new healthcare supply chain approach, proposing a modified taxonomy of inventory models.

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Section: Discussionmentioning

confidence: 99%

“…Since uncertainty constitutes a significant challenge to model inventory situations, taking a stochastic viewpoint becomes necessary; thus, there is a need to go beyond the conventional deterministic optimization thinking (Feng and Shanthikumar, 2022).…”

Section: Literature Reviewmentioning

confidence: 99%

Strategies for reducing healthcare supply chain inventory costs

Essila

2022

BIJ

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“…To be able to identify the desired structures of the decisions, we also need to examine how the uncertain demand and supply would respond to the decisions, which requires the notions of stochastic functions. The reader is referred to Feng and Shanthikumar (2022) for properties and examples of the stochastic functions described in Definition 1. The notions of stochastic linearity and stochastic concavity are much more general than their deterministic counterparts.…”

Section: Appendix: Preliminaries On Stochastic Functionsmentioning

confidence: 99%

“…LEMMA 5. (Feng and Shanthikumar, 2022) Suppose {X (y), y ∈ } has an SL(mp) transformation with E[X (y)] increasing (decreasing) in y. Then, for any y 1 , y 2 ∈  and z 1 , z 2 ∈ R with ȳ = inf(sup){y : E[X (y)] ≥ (E[X (y 1 )] + E[X (y 2 )])∕2} and z = (z 1 + z 2 )∕2, there exists a z ≤ z such that 1 2…”

Section: Appendix: Preliminaries On Stochastic Functionsmentioning

confidence: 99%

The Effect of Supply Uncertainty on Dynamic Procurement and Pricing Strategies Under Lost Sales

Feng,

Li,

Shanthikumar

2024

Production and Operations Management

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The uncertainty in the supplier’s material flows has become a norm rather than an exception in supply chains. The supply uncertainty can result in unexpected inventory shortfall, amplifying lost sales. However, the design of inventory replenishment and product pricing policy to mitigate both supply uncertainty and demand loss remains unexplored. This is because the resulting dynamic planning problem is highly nonconcave and thus intractable. To address this challenge, we propose an approach that focuses on a class of intuitively appealing and practically plausible policies. Specifically, as the level of on-hand inventory increases, we expect an increased amount of demand fulfillment and a decreased product price. Applying the notion of stochastic functions, we show that, under general conditions of the stochastic supply and demand functions, the dynamic planning problem becomes a concave optimization problem over the restricted policy class. We further reduce the set of candidate policies to a refined class by excluding the dominated policies. A refined policy can be easily computed, and appropriately selected refined policies produce close-to-optimal profits. These developments allow us to evaluate the consequences of demand loss. In particular, demand retention through backordering can be beneficial when overstocking is costly in relation to understocking, but the benefit is insensitive to supply and demand uncertainties. Moreover, inventory-based dynamic pricing is more valuable in mitigating supply risk under lost sales than under backordering.

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“…Moreover, we work with the situation where supplies of different products are independent. It is possible to extend our analysis to positively dependent supply processes by directly applying the approach developed by and Feng and Shanthikumar (2021), which may make the exposition overly complex without adding additional new insights.…”

Section: Problem Formulationmentioning

confidence: 99%

Dynamic Substitution for Selling Multiple Products under Supply and Demand Uncertainties

Feng

et al. 2022

Production and Operations Management

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S ubstitution is a commonly adopted strategy for matching the demand mix by appropriately allocating the supplies.The recent development of information technology has allowed firms to easily swap products to meet consumers' preferences. When formulating substitution policies, firms have to take into account the supply and demand conditions, as well as the cost and benefit of substitution. We formulate a dynamic model, in which the firm replenishes the product inventories from uncertain sources and dynamically allocates the available products to meet the uncertain demands with the flexibility of substitution. To address the analytical challenge associated with multi-product management, we develop a heuristic algorithm that leverages the value of substitution, while allowing separability of future profit among the products. This heuristic algorithm iteratively solves a transportation problem in a network with the reverse Monge property. The application of the reverse Monge property allows us to deal with general substitution structures, which generalizes the commonly studied downward substitution models. Given the product inventories, the derived allocation policy is asymptotically optimal when the firm can frequently remix the products to fulfill the received demands. Through an extensive numerical analysis, we demonstrate that the heuristic policy yields good performance measured by the percentage profit gap from an upper bound problem. We also show that substitution can generate significant benefits when the supply capacities are moderate, the supply and demand uncertainties are high, or the replenishment cycle is short.

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Applications of Stochastic Orders and Stochastic Functions in Inventory and Pricing Problems

Cited by 9 publications

References 52 publications

Strategies for reducing healthcare supply chain inventory costs

Strategies for reducing healthcare supply chain inventory costs

The Effect of Supply Uncertainty on Dynamic Procurement and Pricing Strategies Under Lost Sales

Dynamic Substitution for Selling Multiple Products under Supply and Demand Uncertainties

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