-

 

 

 




Optimization Online





 

Convex Optimization of Centralized Inventory Operations

Samuel Burer (samuel-burer***at***uiowa.edu)
Moshe Dror (mdror***at***eller.arizona.edu)

Abstract: Given a finite set of outlets with joint normally distributed demands and identical holding and penalty costs, inventory centralization induces a cooperative cost allocation game with nonempty core. It is well known that for this newsvendor inventory setting the expected cost of centralization can be expressed as a constant multiple of the standard deviation of the joint distribution. The lowering of the centralized cost without changing the mean and variance of demand at each outlet corresponds to a semidefinite optimization problem. This paper establishes a closed-form optimal solution of the semidefinite program and a core allocation of the cost at optimality. The issue of cost (and benefit) allocation separate from the optimization is also studied and it is shown that an exponential-size linear program can be approximated by a polynomial-size second-order program.

Keywords:

Category 1: Applications -- OR and Management Sciences (Production and Logistics )

Category 2: Other Topics (Game Theory )

Category 3: Linear, Cone and Semidefinite Programming

Citation: Manuscript, Department of Management Sciences, University of Iowa, Iowa City, IA, USA, January 2005.

Download: [PDF]

Entry Submitted: 01/11/2005
Entry Accepted: 01/12/2005
Entry Last Modified: 01/11/2005

Modify/Update this entry


  Visitors Authors More about us Links
  Subscribe, Unsubscribe
Digest Archive
Search, Browse the Repository

 

Submit
Update
Policies
Coordinator's Board
Classification Scheme
Credits
Give us feedback
Optimization Journals, Sites, Societies
Mathematical Programming Society