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Optimality of (s, S) Inventory Policies under Renewal Demand and General Cost Structures

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  • Sandun Perera
  • Ganesh Janakiraman
  • Shun†Chen Niu

Abstract

We study a single†stage, continuous†time inventory model where unit†sized demands arrive according to a renewal process and show that an (s, S) policy is optimal under minimal assumptions on the ordering/procurement and holding/backorder cost functions. To our knowledge, the derivation of almost all existing (s, S)†optimality results for stochastic inventory models assume that the ordering cost is composed of a fixed setup cost and a proportional variable cost; in contrast, our formulation allows virtually any reasonable ordering†cost structure. Thus, our paper demonstrates that (s, S)†optimality actually holds in an important, primitive stochastic setting for all other practically interesting ordering cost structures such as well†known quantity discount schemes (e.g., all†units, incremental and truckload), multiple setup costs, supplier†imposed size constraints (e.g., batch†ordering and minimum†order†quantity), arbitrary increasing and concave cost, as well as any variants of these. It is noteworthy that our proof only relies on elementary arguments.

Suggested Citation

  • Sandun Perera & Ganesh Janakiraman & Shun†Chen Niu, 2018. "Optimality of (s, S) Inventory Policies under Renewal Demand and General Cost Structures," Production and Operations Management, Production and Operations Management Society, vol. 27(2), pages 368-383, February.
  • Handle: RePEc:bla:popmgt:v:27:y:2018:i:2:p:368-383
    DOI: 10.1111/poms.12795
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    Cited by:

    1. Gong, Min & Lian, Zhaotong & Xiao, Hua, 2022. "Inventory control policy for perishable products under a buyback contract and Brownian demands," International Journal of Production Economics, Elsevier, vol. 251(C).
    2. Yonit Barron, 2023. "Integrating Replenishment Policy and Maintenance Services in a Stochastic Inventory System with Bilateral Movements," Mathematics, MDPI, vol. 11(4), pages 1-35, February.
    3. Angelos Kourepis & Alexandros Diamantidis & Stylianos Koukoumialos, 2022. "Exact analysis of a push–pull system with multiple non identical retailers, a distribution center and multiple non identical unreliable suppliers with supply disruptions," Operational Research, Springer, vol. 22(5), pages 4801-4827, November.
    4. Sandun C. Perera & Suresh P. Sethi, 2023. "A survey of stochastic inventory models with fixed costs: Optimality of (s, S) and (s, S)‐type policies—Continuous‐time case," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 154-169, January.

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