Near-optimal (r,Q) policies for a two-stage serial inventory system with Poisson demand

Lei Yang, Jian Yang, Gang Yu, Hanqin Zhang

Research output: Contribution to journalArticlepeer-review

9 Scopus citations


We consider a two-stage serial inventory system whose cost structure exhibits economies of scale in both stages. In the system, stage 1 faces Poisson demand and replenishes its inventory from stage 2, and the latter stage in turn orders from an outside supplier with unlimited stock. Each shipment, either to stage 2 or to stage 1, incurs a fixed setup cost. We derive important properties for a given echelon-stock (r, Q) policy for an approximation of the problem where all states are continuous. Based on these properties, we design a simple heuristic algorithm that can be used to find a near-optimal (r, Q) policy for the original problem. Numerical examples are given to demonstrate the effectiveness of the algorithm.

Original languageEnglish (US)
Pages (from-to)728-735
Number of pages8
JournalInternational Journal of Production Economics
Issue number2
StatePublished - Oct 10 2011
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering


  • (r,Q) policy
  • Algorithm
  • Multi-echelon inventory
  • Stochastic demand


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