Inventory Control with Multiple Setup Costs

Osman Alp (), Woonghee Tim Huh () and Tarkan Tan ()
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Osman Alp: Department of Industrial Engineering, TED University, 06420 Ankara, Turkey
Woonghee Tim Huh: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada
Tarkan Tan: School of Industrial Engineering, Eindhoven University of Technology, 5600 MB Eindhoven, The Netherlands

Manufacturing & Service Operations Management, 2014, vol. 16, issue 1, 89-103

Abstract: We consider an infinite-horizon, periodic-review, single-item production/inventory system with random demand and backordering, where multiple setups are allowed in any period and a separate fixed cost is associated for each setup. Contrary to the majority of the literature on this topic, we do not restrict the order quantities to be integer multiples of the exogenously given batch size and instead allow the possibility of partial batches, in which case the fixed cost for ordering the batch is still fully charged. We build a model that particularly takes the batch-ordering cost structure into account. We introduce an alternative cost-accounting scheme to analyze the problem, which we use to develop a computationally efficient optimal solution method and several properties of the optimal solution. In addition, we propose two heuristic policies, both of which perform extremely well computationally.

Keywords: inventory control; multiple setups; Markov decision process (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:16:y:2014:i:1:p:89-103

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