Stochastic Perishable Inventory Systems: Dual-Balancing and Look-Ahead Approaches

Abstract

We study a single-item, multi-period, stochastic perishable inventory problem under both backlogging and lost-sales circumstances, with and without an order capacity constraint in each period. We first model the problem as a dynamic program and then develop two heuristics namely, Dual-Balancing (DB) and Look-Ahead (LA) policies, to approximate the optimal inventory level at the beginning of each period. To characterize the holding and backlog cost functions under the proposed polices, we introduce a truncated marginal holding cost for the marginal cost accounting scheme. Our numerical examples demonstrate that both DB and LA policies have a possible worst-case performance guarantee of two in perishable inventory systems under different assumptions, and the LA policy significantly outperforms the DB policy in most situations. We also analyze the target inventory level in each period (the inventory level at the beginning of each period) under different policies. We observe that the target inventory level under the LA policy is not larger than the optimal one in each period in systems without an order capacity constraint.