Title: Interchanging fill rate constraints and backorder costs in inventory models
Authors: Jiang Zhang; Matthew J. Sobel
Department of Management, Marketing, and Decision Sciences, School of Business, Adelphi University, Garden City 11530, New York, USA
Department of Operations, Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, Ohio 44106, USA
Abstract: This paper shows that fill rate constraints and backorder costs are interchangeable in dynamic newsvendor models. We establish monotone mappings between the set of optimal policies with backorder costs and the set of optimal policies with fill rate constraints. This clarifies the extent to which a parametric analysis of optima in one case can be performed via an algorithm directed at the other case. In a sense that is made precise, it is unnecessary to study both cases of a model; either case alone is sufficient.
Keywords: inventory policies; fill rate constraints; backorder costs; dynamic programming; discrete demand; continuous demand; inventory modelling; dynamic newsvendor models.
Int. J. of Mathematics in Operational Research, 2012 Vol.4, No.4, pp.453 - 472
Available online: 02 Sep 2012