A simple heuristic for computing non-stationary inventory policies based on function approximation

Onur A. Kilic and S. Armagan Tarim

European Journal of Operational Research, 2024, vol. 316, issue 3, 899-905

Abstract: We consider a finite-horizon periodic-review inventory system with fixed replenishment costs that faces non-stationary demands. The structure of the optimal control policy for this system has long been known. However, finding optimal policy parameters requires solving a large-scale stochastic dynamic program. To circumvent this, we devise a recursion-free approximation for the cost function of the problem. This translates into an efficient and effective heuristic to compute policy parameters that significantly outperforms earlier heuristics. Our approach is easy-to-understand and easy-to-use as it follows by elementary methods of shortest paths and convex minimization.

Keywords: Inventory; Stochastic; Non-stationary demand; Approximation; Heuristic (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:316:y:2024:i:3:p:899-905

DOI: 10.1016/j.ejor.2024.02.016

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