Article ID: | iaor2016995 |
Volume: | 63 |
Issue: | 1 |
Start Page Number: | 32 |
End Page Number: | 46 |
Publication Date: | Feb 2016 |
Journal: | Naval Research Logistics (NRL) |
Authors: | Martnez-de-Albniz Victor, Berling Peter |
Keywords: | combinatorial optimization, inventory, stochastic processes |
In this article, we present a multistage model to optimize inventory control decisions under stochastic demand and continuous review. We first formulate the general problem for continuous stages and use a decomposition solution approach: since it is never optimal to let orders cross, the general problem can be broken into a set of single‐unit subproblems that can be solved in a sequential fashion. These subproblems are optimal control problems for which a differential equation must be solved. This can be done easily by recursively identifying coefficients and performing a line search. The methodology is then extended to a discrete number of stages and allows us to compute the optimal solution in an efficient manner, with a competitive complexity.