Title

Optimal Policy for Continuous-Review Inventory Problem with Partial Backlogging Demand and Positive Lead Time

Publication Type

Presentation

Publication Date

1-2011

Abstract

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.

Discipline

Business Administration, Management, and Operations

Publication

POMS-HK International Conference in Hong Kong

City or Country

Hong Kong

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