Static Inventory Models: Single Purchase Decisions

Prem Vrat
Additional contact information
Prem Vrat: ITM University

Chapter 4 in Materials Management, 2014, pp 51-66 from Springer

Abstract: Abstract Static inventory models pertaining to optimal order quantity for the single relevant period have been developed in this chapter. These problems become particularly challenging if the item is expensive and the demand during the period is probabilistic. A number of situations where these models are applicable have been outlined. Models for items procured for consumption such as insurance spares to be ordered along with the ordering of main equipment have been developed with or without salvage value. MTBF-based approach using cumulative Poisson probability is proposed if data on probability of demand is not easily available. In the case of items stocked for sale to maximize the total expected profit, the model has been presented as a kind of famous “Newsboy” Problem. For normal distribution of demand, a simpler approach employing normal distribution tables has been shown to be very handy. For multi-item problems with budget or space constraint, a model based on the method of Lagrange multipliers has been presented with an iterative solution methodology. The value of Lagrange multiplier is shown to be the shadow price per unit of resource constraint and can be very insightful for rationally addressing the issue of adding extra budget or increasing storage space.

Keywords: Static inventory model; Probabilistic demand; Optimality criterion; Newsboy problem; Cumulative Poisson probability; Budget constraint; Lagrange multiplier (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-81-322-1970-5_4

Ordering information: This item can be ordered from
http://www.springer.com/9788132219705

DOI: 10.1007/978-81-322-1970-5_4

Access Statistics for this chapter

More chapters in Springer Texts in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().