Optimal stochastic inventory control with deterioration and partial backlogging/service-level constraints
by Yang Tan; Michael X. Weng
International Journal of Operational Research (IJOR), Vol. 16, No. 2, 2013

Abstract: A new inventory system with finite planning horizon is studied for deteriorating items. The system is under periodic review and there is a positive fixed order cost associated with any placed order. Customer demand is stochastic and a constant fraction of any positive leftover stock is deteriorated at the end of each period. This study first considers that any unsatisfied demand is partially backlogged and fulfilled immediately as a new order arrives. The optimal conditions under which a (s, S) policy holds are successfully derived. Then the effect of partial backlogging is replaced by incorporating the service-level constraints so that the explicit order quantities are obtained by reformulating the problem as a mixed-integer programming model.

Online publication date: Tue, 29-Jul-2014

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