Inventory Control with Generalized Expediting

Eric Logan Huggins () and Tava Lennon Olsen ()
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Eric Logan Huggins: School of Business Administration, Fort Lewis College, Durango, Colorado 81301
Tava Lennon Olsen: Department of Information Systems and Operations Management, University of Auckland Business School, Auckland 1010, New Zealand

Operations Research, 2010, vol. 58, issue 5, 1414-1426

Abstract: We consider a single-item, periodic-review inventory control problem in which discrete stochastic demand must be satisfied. When shortages occur, the unmet demand must be filled by some form of expediting; we allow a very general form for the cost structure of expediting. We explicitly consider the case where expedited production is allowed to produce up to a positive inventory level. We also consider the case where expedited production beyond the deficit is not permitted; an alternate application for this model is an inventory system with general lost sales costs. For the infinite-horizon discounted problem, we characterize the structure of the optimal stationary expediting policy and show that an ( s , S ) policy is optimal for regular production. For the special cases where the expediting cost function is concave or consists of a fixed and linear per-unit cost, we show that the optimal stationary expediting policy is generalized ( s , S ) or order-up-to, respectively. A numerical study allows us to gain insight into when expediting above and beyond the deficit is cost-effective.

Keywords: inventory/production policies; Markov decision policies; overtime production (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (16)

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