Optimal Dual-Souring Inventory Policies with Order Tracking: Backlogging and Lost Sales Under Uncertain Lead Times
Prof. Li XIAO
Associate Professor in Business Intelligence and Analytics
FBA, UM
Date: 9 September 2025 (Tuesday)
Time: 1:00pm to 2:00pm
Venue: FBA Lobby
Abstract
This study explores the effective use of order-tracking information in dual-sourcing inventory systems in both backlogging and lost-sales settings. Our inventory model features a normal source, comprising a two-stage tandem queue with Erlang-distributed processing times at each stage, and an emergency source that bypasses the first stage. We show that under certain conditions the optimal policy is characterized by two thresholds and one switching curve determined by the workload at the emergency source. We establish this result in three steps: (1) reducing the state space, (2) constructing a more tractable auxiliary system and identifying its optimal policy structure by leveraging a novel functional property called the exchange axiom property, and (3) applying sample-path analysis to derive the optimal policy for the original system based on the optimal policy of the auxiliary system. When the conditions are not satisfied, we propose a heuristic policy inspired by the auxiliary optimal policy, exploiting full order-tracking information, and demonstrate its near optimality numerically. Building on these insights, we develop three simplified heuristic policies that rely on partial or no order-tracking information and evaluate their effectiveness numerically. The results highlight the significant value of order tracking, showing that the advantages of full information are notably greater under lost sales compared with backlogging.
Speaker
Li Xiao is an Associate Professor at the Faculty of Business Administration, University of Macau. Her research primarily focuses on supply chain management and service operations. She earned her Ph.D. from the National University of Singapore, an M.Sc. from the Chinese Academy of Sciences, and a B.S. from Wuhan University. Prior to joining the University of Macau, she held academic positions including Postdoctoral Fellow and Research Assistant Professor at the Chinese University of Hong Kong, Assistant Professor at Tsinghua University, and Associate Professor at the Southern University of Science and Technology. Her work has been published in leading journals such as Operations Research and Production and Operations Management.
All are welcome!
