Seminar_20240425

Planning with Supply Yield Uncertainty: On the Optimality of Linear Policies

25/04/24 | 1:00pm | Business School (MHL 224)

Dr. Riccardo Mogre, Associate Professor

Durham University

Abstract: We study inventory planning under demand and supply yield uncertainty. We present new optimality conditions and explicit solutions for the associated single-period inventory management model with backlog, for two yield models: stochastically proportional and binomial. Some of the new exact results we provide include the case in which the demand and the yield are normally distributed and the case in which the demand is uniformly distributed, and the yield is stochastically proportional, with the stochastic factor also uniformly distributed. For this problem, the literature has proposed Linear Inflation Rules (LIRs) that inflate the classic order-up-to policy. However, the stochastic-optimal order policy is in general a non-linear function of the starting inventory level. We prove that LIRs are only stochastically optimal in the degenerate setting where either demand or supply yield is uncertain, but not both. Nevertheless, we show that LIRs work well in practice, and we further investigate their performance under two robust formulations, for which we provide bounds. We show that LIRs are robustly optimal when the only information available includes the supports of the demand and the proportional yield distributions. When the only information available includes the first two moments of these distributions, we show that the optimal distribution-free policy is again non-linear. Our models provide novel, explicit order rules that work well in practice. This is joint work with J.A. Van Mieghem.

Bio: Riccardo Mogre is an Associate Professor in Operations Management and a Fellow of the Durham Energy Institute. His research focuses on how to make decisions in the presence of risks for problems such as resource allocation, congestion management, and inventory management. His methodological expertise includes techniques such as dynamic programming, queueing theory, and discrete-event simulation. His research has been funded by the EU and ESRC, among others. He was also awarded a Fulbright Scholarship to conduct research at MIT. 

At Durham, Riccardo is the lead of the Operations Management Group, which is part of the Centre for Strategy, Technological Innovation, and Operations of which is also co-director. He is also the faculty representative at the University Senate for Wider Student Experience. Riccardo currently teaches courses on Business Analytics, Data-driven Innovation, and Project Management to MBA and MSc students.

Event Time and Venue: April 25th, 2024, 1:00pm, Business School (MHL 224)

Zoom Access: Click here