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Periodic Review Inventory Systems with Continuous Demand and Discrete Order Sizes

Author

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  • John N. Tsitsiklis

    (Department of Electrical Engineering, Stanford University, Stanford, California 94305)

Abstract

We study a single product inventory system with nonnegative setup cost in which the demand is a continuous random variable but orders are restricted to be integer valued. Optimal policies, when there are no setup costs, have a nice form. However, we show that, when the setup costs are nonzero, optimal policies may have a very counterintuitive form without any particular structure. We obtain a bound for the increase in costs resulting from the restriction of orders to be integers and define a suboptimal policy whose performance is within that bound.

Suggested Citation

  • John N. Tsitsiklis, 1984. "Periodic Review Inventory Systems with Continuous Demand and Discrete Order Sizes," Management Science, INFORMS, vol. 30(10), pages 1250-1254, October.
    • Handle: RePEc:inm:ormnsc:v:30:y:1984:i:10:p:1250-1254
    DOI: 10.1287/mnsc.30.10.1250
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    Cited by:

    1. Nan Chen & Yanchu Liu, 2014. "American Option Sensitivities Estimation via a Generalized Infinitesimal Perturbation Analysis Approach," Operations Research, INFORMS, vol. 62(3), pages 616-632, June.

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