Publication:
Inventory management with random supply and imperfect information: a hidden Markov model

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In most of the papers on inventory models operating in a random environment, the state of the environment in each period is assumed to be fully observed with perfect information. However, this assumption is not realistic in most real-life situations and we provide a remedy in this paper by assuming that the environment is only partially observed with imperfect information. We accomplish this by analyzing two formulations of single-item models with periodic-review and random supply in a random environment. In the first one, supply is random due to random capacity of production and random availability of transportation. We show that state-dependent base-stock policy is optimal if the capacity and all costs are observed, while demand and availability are unobserved. In the second model, we consider a model with random availability only with fixed-ordering cost. We show that state-dependent (s,S) policy is optimal if the availability process is observable. (C) 2011 Elsevier B.V. All rights reserved.

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Elsevier Science Bv

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Engineering, Industrial engineering, Engineering, Manufacturing engineering, Operations research, Management science

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International Journal of Production Economics

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10.1016/j.ijpe.2011.04.033

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