Technical Note—New Sufficient Conditions for ( s, S ) Policies to be Optimal in Systems with Multiple Uncertainties

Lucy Gongtao Chen (), Lawrence W. Robinson (), Robin O. Roundy () and Rachel Q. Zhang ()
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Lucy Gongtao Chen: NUS Business School, National University of Singapore, Singapore, 117592
Lawrence W. Robinson: Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853
Robin O. Roundy: Department of Mathematics, Brigham Young University, Provo, Utah 84602
Rachel Q. Zhang: Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong

Operations Research, 2015, vol. 63, issue 1, 186-197

Abstract: In today’s business environment, unpredictable economic and noneconomic forces can affect firms’ operational costs and discount factors, as well as demand. In this paper, we incorporate these uncertainties into a single-product, periodic-review, finite-horizon stochastic inventory system by modeling operational costs, discount factors, and demands as stochastic processes that evolve over time. We study three stockout protocols and establish conditions under which ( s, S ) inventory policies are optimal when discount factors, operational costs, and demands are stochastic and correlated both to one another and over time. Examples are provided to demonstrate nontrivial optimal policies in the absence of these sufficient conditions.

Keywords: inventory policy; stochastic discount factor; multiple uncertainties (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:63:y:2015:i:1:p:186-197

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