Continuous-review, lost-sales inventory models with Poisson demand, a fixed lead time and no fixed order cost

Continuous-review, lost-sales inventory models with Poisson demand, a fixed lead time and no fixed order cost

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Article ID: iaor20084262
Country: Netherlands
Volume: 176
Issue: 2
Start Page Number: 956
End Page Number: 963
Publication Date: Jan 2007
Journal: European Journal of Operational Research
Authors:
Abstract:

This paper considers continuous-review lost-sales inventory models with no fixed order cost and a Poisson demand process. There is a holding cost per unit per unit time and a lost sales cost per unit. The objective is to minimise the long run total cost. Base stock policies are, in general, sub-optimal under lost sales. The optimal policy would have to take full account of the remaining lead times on all the orders currently outstanding and such a policy would be too complex to analyse, let alone implement. This paper considers policies which make use of the observation that, for lost sales models, base stock policies can be improved by imposing a delay between the placement of successive orders. The performance of these policies is compared with that of the corresponding base stock policy and also with the policy of ordering at fixed and regular intervals of time.

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