IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v149y2014icp17-27.html
   My bibliography  Save this article

The discounted (R,Q) inventory model—The Shrewd Accountant's Heuristic

Author

Listed:
  • Farvid, Mojtaba
  • Rosling, Kaj

Abstract

The discounted continuous-review (R,Q) inventory model with continuous and stochastic demand is investigated. New optimality conditions are derived, clarifying the difference to the average-cost case, also graphically. Supported by depreciation theory, applied to the value of a setup, the results suggest an insightful and very precise approximation – The Shrewd Accountant's Heuristic – based on a new average-cost model. It deepens and extends the work of Hadley (1964). Three examples are worked out in detail and the model is generalized to Poisson demand and to stochastic lead-times.

Suggested Citation

  • Farvid, Mojtaba & Rosling, Kaj, 2014. "The discounted (R,Q) inventory model—The Shrewd Accountant's Heuristic," International Journal of Production Economics, Elsevier, vol. 149(C), pages 17-27.
    • Handle: RePEc:eee:proeco:v:149:y:2014:i:c:p:17-27
    DOI: 10.1016/j.ijpe.2013.02.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527313000777
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2013.02.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Beullens, Patrick & Janssens, Gerrit K., 2011. "Holding costs under push or pull conditions - The impact of the Anchor Point," European Journal of Operational Research, Elsevier, vol. 215(1), pages 115-125, November.
    2. Arthur F. Veinott, Jr. & Harvey M. Wagner, 1965. "Computing Optimal (s, S) Inventory Policies," Management Science, INFORMS, vol. 11(5), pages 525-552, March.
    3. Ganesh Janakiraman & John A. Muckstadt, 2004. "Inventory Control in Directed Networks: A Note on Linear Costs," Operations Research, INFORMS, vol. 52(3), pages 491-495, June.
    4. Corbacioglu, Umut & van der Laan, Erwin A., 2007. "Setting the holding cost rates in a two-product system with remanufacturing," International Journal of Production Economics, Elsevier, vol. 109(1-2), pages 185-194, September.
    5. Awi Federgruen & Zvi Schechner, 1983. "Technical Note—Cost Formulas for Continuous Review Inventory Models with Fixed Delivery Lags," Operations Research, INFORMS, vol. 31(5), pages 957-965, October.
    6. Grubbstrom, Robert W. & Thorstenson, Anders, 1986. "Evaluation of capital costs in a multi-level inventory system by means of the annuity stream principle," European Journal of Operational Research, Elsevier, vol. 24(1), pages 136-145, January.
    7. G. Hadley, 1964. "A Comparison of Order Quantities Computed Using the Average Annual Cost and the Discounted Cost," Management Science, INFORMS, vol. 10(3), pages 472-476, April.
    8. Chao, Hung-po, 1992. "The EQQ model with stochastic demand and discounting," European Journal of Operational Research, Elsevier, vol. 59(3), pages 434-443, June.
    9. Andrew J. Clark & Herbert Scarf, 2004. "Optimal Policies for a Multi-Echelon Inventory Problem," Management Science, INFORMS, vol. 50(12_supple), pages 1782-1790, December.
    10. Peter Berling & Kaj Rosling, 2005. "The Effects of Financial Risks on Inventory Policy," Management Science, INFORMS, vol. 51(12), pages 1804-1815, December.
    11. Johansen, Soren Glud & Thorstenson, Anders, 1996. "Optimal (r, Q) inventory policies with Poisson demands and lost sales: discounted and undiscounted cases," International Journal of Production Economics, Elsevier, vol. 46(1), pages 359-371, December.
    12. Kaj Rosling, 2002. "Inventory Cost Rate Functions with Nonlinear Shortage Costs," Operations Research, INFORMS, vol. 50(6), pages 1007-1017, December.
    13. Klein Haneveld, Willem K. & Teunter, Ruud H., 1998. "Effects of discounting and demand rate variability on the EOQ," International Journal of Production Economics, Elsevier, vol. 54(2), pages 173-192, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Beullens, Patrick, 2014. "Revisiting foundations in lot sizing—Connections between Harris, Crowther, Monahan, and Clark," International Journal of Production Economics, Elsevier, vol. 155(C), pages 68-81.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Beullens, Patrick, 2014. "Revisiting foundations in lot sizing—Connections between Harris, Crowther, Monahan, and Clark," International Journal of Production Economics, Elsevier, vol. 155(C), pages 68-81.
    2. Beullens, Patrick & Janssens, Gerrit K., 2014. "Adapting inventory models for handling various payment structures using net present value equivalence analysis," International Journal of Production Economics, Elsevier, vol. 157(C), pages 190-200.
    3. B C Giri & T Dohi, 2005. "Exact formulation of stochastic EMQ model for an unreliable production system," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(5), pages 563-575, May.
    4. van der Laan, Erwin, 2003. "An NPV and AC analysis of a stochastic inventory system with joint manufacturing and remanufacturing," International Journal of Production Economics, Elsevier, vol. 81(1), pages 317-331, January.
    5. Grubbström, Robert W., 2010. "The Newsboy problem when customer demand is a compound renewal process," European Journal of Operational Research, Elsevier, vol. 203(1), pages 134-142, May.
    6. Beullens, Patrick & Janssens, Gerrit K., 2011. "Holding costs under push or pull conditions - The impact of the Anchor Point," European Journal of Operational Research, Elsevier, vol. 215(1), pages 115-125, November.
    7. Giri, B. C. & Dohi, T., 2004. "Optimal lot sizing for an unreliable production system based on net present value approach," International Journal of Production Economics, Elsevier, vol. 92(2), pages 157-167, November.
    8. Corbacioglu, Umut & van der Laan, Erwin A., 2007. "Setting the holding cost rates in a two-product system with remanufacturing," International Journal of Production Economics, Elsevier, vol. 109(1-2), pages 185-194, September.
    9. Ghiami, Yousef, 2023. "An analysis on production and inventory models with discounted cash-flows," Omega, Elsevier, vol. 117(C).
    10. Awi Federgruen & Min Wang, 2015. "Inventory Models with Shelf-Age and Delay-Dependent Inventory Costs," Operations Research, INFORMS, vol. 63(3), pages 701-715, June.
    11. Ramasesh, Ranga V., 2010. "Lot-sizing decisions under limited-time price incentives: A review," Omega, Elsevier, vol. 38(3-4), pages 118-135, June.
    12. Bazsa-Oldenkamp, E.M. & den Iseger, P., 2002. "Optimal continuous order quantity (s,S) policies; the 45-degrees algorithm," Econometric Institute Research Papers EI 2002-47, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    13. Bazsa-Oldenkamp, E.M. & den Iseger, P., 2003. "Optimal continuous order quantity (s,S) policies - the 45-degrees algorithm," Econometric Institute Research Papers EI 2002-47, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    14. Güllü, Refik & Erkip, Nesim, 2024. "Risk pooling under demand and price uncertainty," European Journal of Operational Research, Elsevier, vol. 315(1), pages 120-129.
    15. Tong Wang & Beril L. Toktay, 2008. "Inventory Management with Advance Demand Information and Flexible Delivery," Management Science, INFORMS, vol. 54(4), pages 716-732, April.
    16. Fangruo Chen, 1999. "94%-Effective Policies for a Two-Stage Serial Inventory System with Stochastic Demand," Management Science, INFORMS, vol. 45(12), pages 1679-1696, December.
    17. Bijvank, Marco & Johansen, Søren Glud, 2012. "Periodic review lost-sales inventory models with compound Poisson demand and constant lead times of any length," European Journal of Operational Research, Elsevier, vol. 220(1), pages 106-114.
    18. Alain Bensoussan & Lama Moussawi-Haidar & Metin Çakanyıldırım, 2010. "Inventory control with an order-time constraint: optimality, uniqueness and significance," Annals of Operations Research, Springer, vol. 181(1), pages 603-640, December.
    19. Marco Bijvank & Woonghee Tim Huh & Ganesh Janakiraman & Wanmo Kang, 2014. "Robustness of Order-Up-to Policies in Lost-Sales Inventory Systems," Operations Research, INFORMS, vol. 62(5), pages 1040-1047, October.
    20. Corbacıoğlu, U. & van der Laan, E.A., 2005. "Setting the holding cost rates in a multi-product system with remanufacturing," ERIM Report Series Research in Management ERS-2005-072-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:149:y:2014:i:c:p:17-27. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.