Incremental quantity discounts in a periodic-review stochastic inventory model with a general demand distribution

Jun-Yeon Lee and Ali Behnezhad

International Journal of Mathematics in Operational Research, 2015, vol. 7, issue 2, 178-193

Abstract: We examine a periodic-review stochastic inventory model in which the buyer places orders to meet stochastic demands under an incremental quantity discount schedule with a single price-break point. With a general demand distribution, we prove the optimality of a state-dependent base-stock policy for the single-period problem and provide simple bounds on the optimal order-up-to levels for the multiple-period problem. We also solve the infinite horizon problem by using the policy iteration method. Our computational results suggest that a state-dependent base-stock policy is also optimal for the multiple-period and infinite-horizon problems.

Keywords: state-dependent base-stock policy; incremental quantity discounts; demand uncertainty; stochastic modelling; inventory modelling; periodic-review inventory; general demand distribution. (search for similar items in EconPapers)
Date: 2015
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