Stochastic Periodic-Review Models with Duration- and Quantity-Dependent Inventory Costs: Properties and Approximations

Tal Avinadav ()
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Tal Avinadav: Department of Management, Bar-Ilan University, Ramat-Gan 52900, Israel

Asia-Pacific Journal of Operational Research (APJOR), 2016, vol. 33, issue 04, 1-25

Abstract: In this paper, we formulate a stochastic periodic-review inventory model with lead-time that considers both duration- and quantity-dependent inventory costs, and show that the optimality equation has the same format as the standard newsvendor problem with a modified demand distribution. We suggest (i) an approximation of the optimal order-up-to level, based on discretization of the inventory cost accounting, and (ii) two heuristic formulas, based on the two-moment normal approximation of the modified demand distribution, and on an approximated deterministic model. We evaluate the performances of these formulas using a Brownian motion demand process under different scenarios, and discuss their advantages and disadvantages.

Keywords: Inventory; stochastic-periodic review; continuous accounting scheme; approximation (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0217595916500305

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