Dead-time compensation in continuous-review perishable inventory systems with multiple supply alternatives

In this paper, the problem of efficient control of continuous-review perishable inventory systems is addressed. In the considered systems the goods at a distribution center used to fulfill unknown, variable demand are subject to exponential decay. The stock is replenished with delay from multiple supply sources characterized by different latency in procuring orders. A new supply policy which incorporates the Smith predictor to counteract the adverse effects of dead-time is developed. The proposed policy guarantees that the assigned storage space at the distribution center is never exceeded which means that the cost of emergency storage is eliminated. Moreover, it is shown that with appropriately chosen controller parameters all of the demand imposed at the distribution center is realized from the readily available resources. The policy outperforms the classical order-up-to one in terms of higher service level and smaller order-to-demand variance ratio. (C) 2012 Elsevier Ltd. All rights reserved.