Periodic Review Inventory Systems with Continuous Demand and Discrete Order Sizes

John N. Tsitsiklis
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John N. Tsitsiklis: Department of Electrical Engineering, Stanford University, Stanford, California 94305

Management Science, 1984, vol. 30, issue 10, 1250-1254

Abstract: We study a single product inventory system with nonnegative setup cost in which the demand is a continuous random variable but orders are restricted to be integer valued. Optimal policies, when there are no setup costs, have a nice form. However, we show that, when the setup costs are nonzero, optimal policies may have a very counterintuitive form without any particular structure. We obtain a bound for the increase in costs resulting from the restriction of orders to be integers and define a suboptimal policy whose performance is within that bound.

Keywords: inventory systems; periodic review; continuous demand; discrete orders (search for similar items in EconPapers)
Date: 1984
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:30:y:1984:i:10:p:1250-1254

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