An Efficient Algorithm for Computing Optimal ( s, S ) Policies

Awi Federgruen and Paul Zipkin
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Awi Federgruen: Columbia University, New York, New York
Paul Zipkin: Columbia University, New York, New York

Operations Research, 1984, vol. 32, issue 6, 1268-1285

Abstract: This paper presents an algorithm to compute an optimal ( s , S ) policy under standard assumptions (stationary data, well-behaved one-period costs, discrete demand, full backlogging, and the average-cost criterion). The method is iterative, starting with an arbitrary, given ( s , S ) policy and converging to an optimal policy in a finite number of iterations. Any of the available approximations can thus be used as an initial solution. Each iteration requires only modest computations. Also, a lower bound on the true optimal cost can be computed and used in a termination test. Empirical testing suggests very fast convergence.

Keywords: 117 dynamic programming; Markov; infinite state; 362 inventory/production stochastic models (search for similar items in EconPapers)
Date: 1984
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