Good and Bad News About the ( S, T ) Policy

Fang Liu () and Jing-Sheng Song ()
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Fang Liu: Nanyang Business School, Nanyang Technological University, Singapore 639798
Jing-Sheng Song: Fuqua School of Business, Duke University, Durham, North Carolina 27708; and School of Management, Fudan University, Shanghai 200433, China

Manufacturing & Service Operations Management, 2012, vol. 14, issue 1, 42-49

Abstract: This paper studies the optimization of the ( S , T ) inventory policy, where T is the replenishment interval and S is the order-up-to level. First, we demonstrate that the previously established joint convexity of the long-run average cost is false. Hence, the optimization is not straightforward. We then point out that the joint convexity concept depends on whether S and T are continuous or discrete variables, and in some situations it may not even be well defined. Nonetheless, we are able to identify several useful properties of the cost function, such as submodularity and coordinatewise convexity. Based on these properties, we develop efficient algorithms to compute the optimal policy for continuous and discrete demands.

Keywords: inventory/production; periodic review; order-up-to policy; convexity; submodularity; unimodality; Brownian motion; gamma process; compound Poisson process (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:14:y:2012:i:1:p:42-49

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