Optimal Policy for Continuous-Review Inventory Problem with Partial Backlogging Demand and Positive Lead Time
We consider a continuous-review inventory control problem with an infinite horizon, Poisson demand process, stochastic lead-time, and partial lost sales. This fundamental inventory problem is known to be notoriously difficult even for the case with 100% lost sales. We present a new solution approach...
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| Main Authors: | , , |
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| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
2011
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/3083 |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | We consider a continuous-review inventory control problem with an infinite horizon, Poisson demand process, stochastic lead-time, and partial lost sales. This fundamental inventory problem is known to be notoriously difficult even for the case with 100% lost sales. We present a new solution approach for the case with zero lead time. In this new approach, we first transform the given problem into a new problem with a different objective function. We then show that the classical (r, Q) policy is optimal to the transformed problem. Based on this result, we introduce a hierarchical structure to describe the optimal and heuristic policies for problems with nonzero lead times and/or multiple orders. |
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