Inventory models with general backorder costs

Inventory models with general backorder costs

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Article ID: iaor19961106
Country: Netherlands
Volume: 65
Issue: 2
Start Page Number: 175
End Page Number: 186
Publication Date: Mar 1993
Journal: European Journal of Operational Research
Authors: ,
Keywords: programming: markov decision
Abstract:

Under the prevalent assumption of linear inventory holding and backorder costs, important results have been established in many basic inventory models. However, the assumption is often too restrictive for many applications. In this paper, the authors study stochastic inventory models under more general backorder costs, namely, the penalty costs for each unit of backorder consisting of fixed and proportional components. Under the backorder cost structure, they derive a necessary and sufficient condition for the quasiconvexity of the one-step loss function. This condition is satisfied by a wide spectrum of demand distributions, but it is not distribution-free. Consequently, existing results based on quasiconvex loss functions are applicable in many, but not all, models with the above cost structure.

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