Interchanging fill rate constraints and backorder costs in inventory models

Jiang Zhang and Matthew J. Sobel

International Journal of Mathematics in Operational Research, 2012, vol. 4, issue 4, 453-472

Abstract: This paper shows that fill rate constraints and backorder costs are interchangeable in dynamic newsvendor models. We establish monotone mappings between the set of optimal policies with backorder costs and the set of optimal policies with fill rate constraints. This clarifies the extent to which a parametric analysis of optima in one case can be performed via an algorithm directed at the other case. In a sense that is made precise, it is unnecessary to study both cases of a model; either case alone is sufficient.

Keywords: inventory policies; fill rate constraints; backorder costs; dynamic programming; discrete demand; continuous demand; inventory modelling; dynamic newsvendor models. (search for similar items in EconPapers)
Date: 2012
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