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An Empirical Study of Exactly and Approximately Optimal Inventory Policies

Author

Listed:
  • Harvey M. Wagner

    (Stanford University)

  • Michael O'Hagan

    (Stanford University)

  • Bertil Lundh

    (Stanford University)

Abstract

The (s, S) inventory model (infinite horizon with stationary parameters) is explored with a view toward determining the dependency of the optimal policy on the model's parameters and toward evaluating the effectiveness of several numerical approximation methods for obtaining nearly optimal policies. The mode of attack is empirical: We compare the results for 828 cases, which encompass several values for each of the economic parameters, three delivery lags, and three distinct demand probability distributions with varying parameter values. We demonstrate for these cases that close to optimal results can be obtained by applying the Fibonacci search procedure, by using a particular asymptotic approximation, as well as by substituting a certain policy not of the (s, S) form.

Suggested Citation

  • Harvey M. Wagner & Michael O'Hagan & Bertil Lundh, 1965. "An Empirical Study of Exactly and Approximately Optimal Inventory Policies," Management Science, INFORMS, vol. 11(7), pages 690-723, May.
    • Handle: RePEc:inm:ormnsc:v:11:y:1965:i:7:p:690-723
    DOI: 10.1287/mnsc.11.7.690
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    Cited by:

    1. Lagodimos, A.G. & Christou, I.T. & Skouri, K., 2012. "Computing globally optimal (s,S,T) inventory policies," Omega, Elsevier, vol. 40(5), pages 660-671.
    2. Hu, Jason & Watson, Edward & Schneider, Helmut, 2005. "Approximate solutions for multi-location inventory systems with transshipments," International Journal of Production Economics, Elsevier, vol. 97(1), pages 31-43, July.
    3. Sean X. Zhou & Chaolin Yang, 2016. "Continuous-Review ( R, nQ ) Policies for Inventory Systems with Dual Delivery Modes," Operations Research, INFORMS, vol. 64(6), pages 1302-1319, December.
    4. Saif, Ahmed & Elhedhli, Samir, 2016. "Cold supply chain design with environmental considerations: A simulation-optimization approach," European Journal of Operational Research, Elsevier, vol. 251(1), pages 274-287.
    5. K. Jeganathan & M. Abdul Reiyas & S. Selvakumar & N. Anbazhagan & S. Amutha & Gyanendra Prasad Joshi & Duckjoong Jeon & Changho Seo, 2022. "Markovian Demands on Two Commodity Inventory System with Queue-Dependent Services and an Optional Retrial Facility," Mathematics, MDPI, vol. 10(12), pages 1-22, June.
    6. 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.

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