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Effective inventory control policies with a minimum order quantity and batch ordering

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  • Zhu, Han
  • Liu, Xing
  • Chen, Youhua (Frank)

Abstract

In this paper, we consider a single-item periodic-review stochastic inventory system with both minimum order quantity (MOQ) and batch ordering requirements. In each time period, the firm can order either none or at least as much as the MOQ. At the same time, if an order is placed, the order quantity is required to be an integral multiple of a given specific batch size. We first adopt a heuristic policy which is specified by two parameters (s,t). Applying a discrete time Markov chain approach, we compute the system cost and optimize this (s,t) policy under the long-run average cost criterion. We also consider a simpler one-parameter policy, the so-called S policy, which is a special case of the (s,t) policy. In an intensive numerical study, we find that (1) both policies perform well in comparison with other policies and (2) the S policy also performs well and is compatible with the (s,t) policy; only in a few cases where demand variation is small, the latter outperforms the former significantly. We also evaluate the effects of some important parameters on system performance.

Suggested Citation

  • Zhu, Han & Liu, Xing & Chen, Youhua (Frank), 2015. "Effective inventory control policies with a minimum order quantity and batch ordering," International Journal of Production Economics, Elsevier, vol. 168(C), pages 21-30.
    • Handle: RePEc:eee:proeco:v:168:y:2015:i:c:p:21-30
    DOI: 10.1016/j.ijpe.2015.06.008
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    References listed on IDEAS

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    2. Rezaei Somarin, Aghil & Chen, Songlin & Asian, Sobhan & Wang, David Z.W., 2017. "A heuristic stock allocation rule for repairable service parts," International Journal of Production Economics, Elsevier, vol. 184(C), pages 131-140.
    3. Huaxiao Shen & Tian Tian & Han Zhu, 2019. "A Two-Echelon Inventory System with a Minimum Order Quantity Requirement," Sustainability, MDPI, vol. 11(18), pages 1-22, September.
    4. Shiyu Liu & Ou Liu & Xiaoming Jiang, 2023. "An Efficient Algorithm for the Joint Replenishment Problem with Quantity Discounts, Minimum Order Quantity and Transport Capacity Constraints," Mathematics, MDPI, vol. 11(4), pages 1-18, February.
    5. Han Zhu, 2022. "A simple heuristic policy for stochastic inventory systems with both minimum and maximum order quantity requirements," Annals of Operations Research, Springer, vol. 309(1), pages 347-363, February.
    6. Muriel, Ana & Chugh, Tammana & Prokle, Michael, 2022. "Efficient algorithms for the joint replenishment problem with minimum order quantities," European Journal of Operational Research, Elsevier, vol. 300(1), pages 137-150.
    7. Ji Seong Noh & Jong Soo Kim & Biswajit Sarkar, 2019. "Stochastic joint replenishment problem with quantity discounts and minimum order constraints," Operational Research, Springer, vol. 19(1), pages 151-178, March.
    8. Perera, Sandun & Janakiraman, Ganesh & Niu, Shun-Chen, 2017. "Optimality of (s, S) policies in EOQ models with general cost structures," International Journal of Production Economics, Elsevier, vol. 187(C), pages 216-228.

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