Title: Optimal stochastic inventory control with deterioration and partial backlogging/service-level constraints

Authors: Yang Tan; Michael X. Weng

Addresses: Department of Pricing Science and Engineering, FedEx Express World Headquarters, 3640 Hacks Cross Road, Memphis, TN 38125, USA ' Department of Industrial and Management Systems Engineering, University of South Florida, 4202 E. Fowler Avenue, Tampa, FL 33620, USA

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.

Keywords: deteriorating items; periodic review; stochastic demand; partial backlogging; service level constraints; operational research; optimisation; stochastic inventory control; finite planning horizon; mixed-integer programming.

DOI: 10.1504/IJOR.2013.051785

International Journal of Operational Research, 2013 Vol.16 No.2, pp.241 - 261

Published online: 29 Jul 2014 *

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