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A simple heuristic for computing non-stationary inventory policies based on function approximation

Author

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  • Kilic, Onur A.
  • Tarim, S. Armagan

Abstract

We consider a finite-horizon periodic-review inventory system with fixed replenishment costs that faces non-stationary demands. The structure of the optimal control policy for this system has long been known. However, finding optimal policy parameters requires solving a large-scale stochastic dynamic program. To circumvent this, we devise a recursion-free approximation for the cost function of the problem. This translates into an efficient and effective heuristic to compute policy parameters that significantly outperforms earlier heuristics. Our approach is easy-to-understand and easy-to-use as it follows by elementary methods of shortest paths and convex minimization.

Suggested Citation

  • Kilic, Onur A. & Tarim, S. Armagan, 2024. "A simple heuristic for computing non-stationary inventory policies based on function approximation," European Journal of Operational Research, Elsevier, vol. 316(3), pages 899-905.
    • Handle: RePEc:eee:ejores:v:316:y:2024:i:3:p:899-905
    DOI: 10.1016/j.ejor.2024.02.016
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