Single period stochastic inventory problems with ordering or returns policies

Single period stochastic inventory problems with ordering or returns policies

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Article ID: iaor20119121
Volume: 61
Issue: 2
Start Page Number: 242
End Page Number: 253
Publication Date: Sep 2011
Journal: Computers & Industrial Engineering
Authors: , , ,
Keywords: supply & supply chains
Abstract:

In recent years, there has been an increasing adoption of returns policies in the coordination of the supply chain, where market demand is always assumed to be satisfied by manufacturing or by ordering from suppliers. However, many industries face the important decision of how to balance their inventory level. This problem has long been studied in financial institutions such as banks. This study presents an optimal inventory policy under a given stochastic demand such as a uniformly distributed demand, single‐item, and single period review inventory system. The optimal inventory control policy obtained in this study is called a four‐point policy: that is, when the entity’s inventory level is below a reorder point, the entity must increase his stock level by ordering and order up‐to a fixed level (second point); when the entity’s inventory level is over a return point (third point); the stock level must be decreased by returns and decreased to a fixed level (fourth point); otherwise, nothing should be done. We also analyze the (K, S)‐convex properties of the inventory cost function.

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