Critical Number Policies for Inventory Models with Periodic Data

Paul Zipkin
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Paul Zipkin: Columbia University, Graduate School of Business, New York, New York 10027

Management Science, 1989, vol. 35, issue 1, 71-80

Abstract: We consider an infinite-horizon in problem with stochastic demands where the data vary periodically. Karlin (Karlin, S. 1960a. Dynamic inventory policy with varying stochastic demands. Management Sci. 6 231--258; Karlin, S. 1960b. Optimal policy for dynamic inventory process with stochastic demands subject to seasonal variations. J. SIAM 8 611--629.) shows that a periodic critical-number policy is optimal and presents an algorithm for computing the critical numbers, assuming discounted costs. Here we develop an alternative, conceptually simpler approach to these problems. The results include a proof of the optimality of such policies for the average-cost case, and a qualitative description of the behavior of the optimal policy as "smoothing" fluctuations in the data.

Keywords: inventory; stochastic models; optimal policies (search for similar items in EconPapers)
Date: 1989
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