An easy derivation of the order level optimality condition for inventory systems with backordering

Ruud Teunter and Rommert Dekker

International Journal of Production Economics, 2008, vol. 114, issue 1, 201-204

Abstract: We analyze the classical inventory model with backordering, where the inventory position is controlled by an order level, order quantity policy. The cost for a backorder contains a fixed and a time-proportional component. Demand can be driven by any discrete process. Order lead times may be stochastic and orders are allowed to cross. The optimality condition for the order-level, given some predetermined order quantity, is derived using an easy and insightful marginal cost analysis. It is further shown how this condition can easily be (approximately) rewritten in well-known forms for special cases.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:114:y:2008:i:1:p:201-204

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