An investigation of setup instability in non‐stationary stochastic inventory systems

In stochastic inventory systems unfolding uncertainties in demand lead to the revision of earlier replenishment plans which in turn results in an instability or so‐called system nervousness. In this paper, we provide the grounds for measuring system nervousness in non‐stationary demand environments, and gauge the stability and the cost performances of (R,S) and (s,S) inventory policies. Our results reveal that, both the stability and the cost performance of inventory policies are affected by the demand pattern as well as the cost parameters, and the (R,S) policy has the potential to replace the cost‐optimal (s,S) policy for systems with limited flexibility.