Note: Optimality Conditions for an (s, S) Policy with Proportional and Lump-Sum Penalty Costs

Sila Çetinkaya () and Mahmut Parlar ()
Additional contact information
Sila Çetinkaya: Department of Industrial Engineering, Texas A&M University, College Station, Texas 77843--3131
Mahmut Parlar: DeGroote School of Business, McMaster University, Hamilton, Ontario L8S 4M4, Canada

Management Science, 2002, vol. 48, issue 12, 1635-1639

Abstract: We consider the optimality of the (s, S) policy for a periodic-review stochastic inventory problem with two types of shortage costs. The problem may arise in a rush-order application at a bank branch where the emergency provision costs during a foreign currency stockout are represented by proportional and lump-sum penalties. Aneja and Noori (1987) analyzed this problem and presented a set of conditions for the convexity of a particular function and made a claim about the K-convexity of another function to prove the optimality of the (s, S) policy. We show that because the function that is claimed to be K-convex is actually concave over a subset of its domain, Aneja and Noori's arguments cannot be used to prove the optimality of the (s, S) policy. However, we argue that Aneja and Noori's problem is equivalent to the typical lost-sales problem, and using this equivalence, we .nd a simple convexity condition that assures the optimality of the (s, S) policy.

Keywords: Stochastic Inventory Models; K-Convexity (search for similar items in EconPapers)
Date: 2002
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.48.12.1635.443 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:48:y:2002:i:12:p:1635-1639

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().