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Optimal Policy for a Multi-Product, Dynamic, Nonstationary Inventory Problem

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  • Arthur F. Veinott, Jr.

    (Stanford University)

Abstract

This paper is concerned with a multi-product dynamic nonstationary inventory problem in which the system is reviewed at the beginning of each of a sequence of periods of equal length. The model has the following features. There is a general demand process with no stationarity or independence assumptions, partial or complete backlogging of unfilled demand, a fixed non-negative delivery lag (which may be positive only under complete backlogging), a nonstationary linear ordering cost, a nonstationary holding and shortage cost function, discounting of future costs, and nonstationary restrictions like budget and storage limitations. The objective is to choose an ordering policy that minimizes the expected discounted costs over an infinite time horizon. Conditions are given that ensure that the base stock ordering policy is optimal and that the base stock levels in each period are easy to calculate.

Suggested Citation

  • Arthur F. Veinott, Jr., 1965. "Optimal Policy for a Multi-Product, Dynamic, Nonstationary Inventory Problem," Management Science, INFORMS, vol. 12(3), pages 206-222, November.
    • Handle: RePEc:inm:ormnsc:v:12:y:1965:i:3:p:206-222
    DOI: 10.1287/mnsc.12.3.206
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