The cost of using stationary inventory policies when demand is non-stationary

Huseyin Tunc, Onur A. Kilic, S. Armagan Tarim and Burak Eksioglu

Omega, 2011, vol. 39, issue 4, 410-415

Abstract: Non-stationary stochastic demands are very common in industrial settings with seasonal patterns, trends, business cycles, and limited-life items. In such cases, the optimal inventory control policies are also non-stationary. However, due to high computational complexity, non-stationary inventory policies are not usually preferred in real-life applications. In this paper, we investigate the cost of using a stationary policy as an approximation to the optimal non-stationary one. Our numerical study points to two important results: (i) Using stationary policies can be very expensive depending on the magnitude of demand variability. (ii) Stationary policies may be efficient approximations to optimal non-stationary policies when demand information contains high uncertainty, setup costs are high and penalty costs are low.

Keywords: Inventory control Non-stationary demand Stationary policy (s; S) policy (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (21)

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