Rolling‐horizon replenishment: Policies and performance analysis

Rolling‐horizon replenishment: Policies and performance analysis

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Article ID: iaor20106120
Volume: 57
Issue: 6
Start Page Number: 489
End Page Number: 502
Publication Date: Sep 2010
Journal: Naval Research Logistics
Authors: , ,
Abstract:

We consider a rolling‐horizon (RH) replenishment modeling framework under which a buyer can update demand information and inventory status, modify order quantities committed previously, place an advanced order for a new period at the end of the RH, and move along in time seamlessly. We show that the optimal order policy for the two‐period RH problem is a dual‐threshold type for updating period(s) plus a base‐stock type for the advanced order. We provide analytical formulas and algorithms to compute the optimal thresholds and the optimal base‐stock level exactly. With our analytical results and numerical procedures, we demonstrate the significant value of RH replenishment in matching supplies to demands more closely. We also show that with RH updating (flexibility), the value of additional demand information beyond the RH diminishes quickly.

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