A dynamic two-segment partial backorder control of (r, Q) inventory system

A dynamic two-segment partial backorder control of (r, Q) inventory system

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Article ID: iaor2002546
Country: United Kingdom
Volume: 28
Issue: 10
Start Page Number: 935
End Page Number: 953
Publication Date: Sep 2001
Journal: Computers and Operations Research
Authors: , , ,
Keywords: control processes
Abstract:

Inventory management involves determination of shortage policy. It specifies the conditions for losing or backordering a demand. Alternative policies include pure backorder, pure lost sales, and partial backorder (using a single backorder control limit). When the backorder-cost is time dependent it makes sense to modify the backorder-limit over time. Thus, a new form of partial backorder policy (PB2) with two-segment backorder control limits is introduced. The traditional policies mentioned above are special cases of PB2. Hence, we provide a unified framework for studying different policies that deal with shortage. The PB2 problem is formulated and solved as a discrete time, stochastic constrained control problem. Its performance is numerically compared with the simpler alternative policies. In some cases its cost savings, versus the best of PB and PL, exceeds 15% and 7% versus a single backorder limit policy. The economical advantage is significant over a wide range of the problem parameters.

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