An (R,r) continuous review inventory policy is considered in a production/inventory environment consisting of a production facility and a finished product warehouse for one type of product. The inventory policy indicates that production starts when the stock on-hand reaches r and continues until the stock level reaches R. The demand process is assumed to be compound Poisson and processing times are phase-type. The problem of finding cost minimizing values of r and R is studied through the analysis of the inventory process for both backordering and lost sales cases. Numerical examples are given to show the computational efficiency of the approach and to show the behaviour of the optimal R and r with respect to the cost parameters.
