Optimal inventory policy when stockouts alter demand

G. J. Caine and R. H. Plaut

Naval Research Logistics Quarterly, 1976, vol. 23, issue 1, 1-13

Abstract: An inventory model in which future demand is affected by stockouts has been considered recently by B. L. Schwartz. Some generalizations of Schwartz's model are presented in this paper and properties of the optimal policies are determined. In the case of deterministic demand, a set‐up cost is included and a mixture of backlogged and nonbacklogged orders is allowed during stockout. It is proved that the optimal policy entails either no stockout or continual stockout, depending on the values of three parameters. For stochastic demand, the effect of stockouts on demand density is postulated, the resulting optimal inventory policy is discussed, and an example involving an exponential density function is then analyzed in detail.

Date: 1976
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Persistent link: https://EconPapers.repec.org/RePEc:wly:navlog:v:23:y:1976:i:1:p:1-13

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