The Optimality of (s, S) Policies for a Stochastic Inventory Problem with Proportional and Lump-Sum Penalty Cost

Yash Aneja and A. Hamid Noori
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Yash Aneja: Faculty of Business Administration, University of Windsor, Windsor, Ontario, Canada
A. Hamid Noori: School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada N2L 3C5

Management Science, 1987, vol. 33, issue 6, 750-755

Abstract: In this paper we consider a single product multi-period inventory problem for which the penalty cost consists of two parts, a lump-sum portion which is independent of the size of the shortage and a portion which is linear in the size of the shortage. We show that for all nonincreasing demand density functions, the expected total cost function is K-convex and hence, there is an optimal policy for the n-period problem that is (s, S).

Keywords: inventory/production: stochastic models; inventory/production: planning horizons (search for similar items in EconPapers)
Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:33:y:1987:i:6:p:750-755

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