Approximation Approaches for Inventory Systems with General Production/Ordering Cost Structures

Ye Lu, Miao Song and Yi Yang

Production and Operations Management, 2018, vol. 27, issue 3, 417-432

Abstract: The production/ordering cost structure is fundamental to determining an optimal inventory control policy. For example, it is well known that a base†stock policy is optimal for inventory systems with linear production costs, whereas an (s, S) policy is optimal if both linear and fixed costs exist. However, many of the cost structures that have arisen from the practice are quite complex and make the optimal policies too complicated for managers to implement. In this study, we propose several easy†to†implement and efficient heuristic policies for inventory systems with general production costs, which include multiple linear pieces and fixed costs, suggesting a wide application to many practical problems that were previously difficult to solve. We establish the worst†case performance bounds on the proposed heuristic policies by using the concept of K†approximate convexity. Our extensive numerical studies, which are designed to reflect practical inventory control applications, evaluate the performance of the heuristic policies and show that the best heuristic policy we propose performs extremely well. We also try to provide explanations for the performance of different heuristic policies.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.1111/poms.12806

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:27:y:2018:i:3:p:417-432

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().