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 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.
Business Administration, Management, and Operations
POMS-HK International Conference in Hong Kong
City or Country
Li, Qingying; DING, Qing; and Li, Chung-lun.
Optimal Policy for Continuous-Review Inventory Problem with Partial Backlogging Demand and Positive Lead Time. (2011). POMS-HK International Conference in Hong Kong. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/3083