Title: Incremental quantity discounts in a periodic-review stochastic inventory model with a general demand distribution

Authors: Jun-Yeon Lee; Ali Behnezhad

Addresses: Department of Systems and Operations Management, College of Business and Economics, California State University, Northridge, 18111 Nordhoff St., Northridge, CA 91330, USA ' Department of Systems and Operations Management, College of Business and Economics, California State University, Northridge, 18111 Nordhoff St., Northridge, CA 91330, USA

Abstract: We examine a periodic-review stochastic inventory model in which the buyer places orders to meet stochastic demands under an incremental quantity discount schedule with a single price-break point. With a general demand distribution, we prove the optimality of a state-dependent base-stock policy for the single-period problem and provide simple bounds on the optimal order-up-to levels for the multiple-period problem. We also solve the infinite horizon problem by using the policy iteration method. Our computational results suggest that a state-dependent base-stock policy is also optimal for the multiple-period and infinite-horizon problems.

Keywords: state-dependent base-stock policy; incremental quantity discounts; demand uncertainty; stochastic modelling; inventory modelling; periodic-review inventory; general demand distribution.

DOI: 10.1504/IJMOR.2015.068291

International Journal of Mathematics in Operational Research, 2015 Vol.7 No.2, pp.178 - 193

Received: 15 May 2013
Accepted: 30 Aug 2013
Published online: 22 Apr 2015 *

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