Dead-time compensation in continuous-review perishable inventory systems with a remote supply source

In this paper we address the problem of efficient control of continuous-review perishable inventory systems. In the considered systems the goods at a distribution center used to fulfill unknown, variable demand deteriorate at a constant rate, and are replenished with delay from a remote supply source. We develop a new supply policy which incorporates the Smith predictor for dead-time compensation. A number of properties of the designed policy is formulated, and strictly proved. In particular, we show that the policy guarantees that the assigned storage space at the distribution center is never exceeded which means that the cost of emergency storage is eliminated. Moreover, we show that with appropriately chosen controller parameters all of the demand imposed at the distribution center is realized from the readily available resources, thus ensuring the maximum service level.