Ordering and stockholding under price inflation when prices increase in successive discrete jumps

Most purchased materials and supplies are subject to increases in price over time. Thus a vital assumption of classical inventory theory, constant unit prices, is incorrect. Previous work in this area has assumed either continuous exponential growth in prices or that the data of the next price rise is known in advance. Investigation shows that prices proceed via a series of discrete jumps followed by plateaus. The time between successive jumps is stochastic. This paper makes use of some analogies with renewal theory to produce appropriate ordering and stockholding policies. The model and some interim results are described. There are two critical levels for inflation, one below which inflation plays no role in the determination of the order quantities, and a second above which a single purchase strategy is best.