Inventory Policies for Systems with Stochastic and Deterministic Demand

Matthew J. Sobel and Rachel Q. Zhang ()
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Matthew J. Sobel: Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106
Rachel Q. Zhang: Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853

Operations Research, 2001, vol. 49, issue 1, 157-162

Abstract: We consider a periodic review inventory system with demand arriving simultaneously from a deterministic source and a random source. The deterministic demand has to be satisfied immediately and the stochastic demand can be backordered. Assuming that the stochastic demand is never backlogged if there is stock in the system, we prove that a modified ( s, S ) policy is optimal under general conditions if there is a setup cost. If there is a smoothing cost instead of the setup cost, we observe that the problem corresponds to a standard model with one source of demand.

Keywords: Inventory/production: deterministic and stochastic demand; contract, optimal policy (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (26)

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