A customer-item decomposition approach to stochastic inventory systems with correlation

Yu Yimin, Saif Benjaafar

Research output: Contribution to conferencePaperpeer-review


We consider an inventory system with a single stage, periodic review, correlated, non-stationary stochastic demand and correlated, non-stationary stochastic and sequential leadtimes. We use the customer-item decomposition approach to decompose the problem into sub-problems, each involving a single customer-item pair. We then formulate each sub-problem as an optimal stopping problem. We use properties that arise from this formulation to show that the optimal policy is a state-dependent base-stock policy and to show, for several cases, that the optimal policy can be obtained via a polynomial time algorithm. We also use the formulation to construct a myopic heuristic which leads to an explicit solution for the optimal policy in the form of a critical fractile. We characterize conditions under which the myopic heuristic is optimal.

Original languageEnglish (US)
Number of pages4
StatePublished - Dec 1 2008
EventIIE Annual Conference and Expo 2008 - Vancouver, BC, Canada
Duration: May 17 2008May 21 2008


OtherIIE Annual Conference and Expo 2008
CityVancouver, BC


  • Demand correlation
  • Leadtime correlation
  • Myopic policy
  • Optimal control
  • Optimal stopping problem
  • Stochastic inventory systems


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