Heavy Traffic Analysis of a Simple Closed-Loop Supply Chain

Date
2010-11-01
Authors
Wang, Lizhi
Ghosh, Arka
Ryan, Sarah
Wang, Lizhi
Ryan, Sarah
Weerasinghe, Ananda
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Abstract

We consider a closed-loop supply chain where new products are produced to order and returned products are refurbished for reselling. The solution to aprice-setting problem enforces the heavy traffic condition, under which we address the production rate control problem for two types of cost functions. Wesolve a drift-control problem for an approximate system driven by a correlated two-dimensional Brownian motion. The solutions to this system are then used to obtain asymptotically optimal control policies. We also conduct a numerical study to explore the effects of different parameters on the optimal production rates and the resulting costs.

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<p>The Version of Record of this manuscript has been published and is available in Stochastic Models 2010, <a href="http://dx.doi.org/10.1080/15326349.2010.519665" target="_blank">http://www.tandfonline.com/10.1080/15326349.2010.519665</a>. Posted with permission.</p>
Keywords
closed loop supply chain, diffusion control problem, heavy traffic analysis, local-time processes, statistics, mathematics
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