Near-optimal modified base stock policies for the capacitated inventory problem with stochastic demand and fixed cost

Date

2014

Authors

Özener, O. Ö.
Güllü, R.
Erkip, N.

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Abstract

In this study, we investigate a single-item, periodic-review inventory problem where the production capacity is limited and unmet demand is backordered. We assume that customer demand in each period is a stationary, discrete random variable. Linear holding and backorder cost are charged per unit at the end of a period. In addition to the variable cost charged per unit ordered, a positive fixed ordering cost is incurred with each order given. The optimization criterion is the minimization of the expected cost per period over a planning horizon. We investigate the infinite horizon problem by modeling the problem as a discrete-time Markov chain. We propose a heuristic for the problem based on a particular solution of this stationary model, and conduct a computational study on a set of instances, providing insight on the performance of the heuristic.

Source Title

Asia-Pacific Journal of Operational Research

Publisher

World Scientific Publishing

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Keywords

Cost accounting, Markov processes, Random processes, Capacity restriction, Computational studies, Discrete random variables, Discrete time Markov chains, Fixed ordering costs, Infinite horizon problems, Inventory, Optimization criteria, Costs

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Published Version (Please cite this version)

Language

English

Type

Article