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Inventory Control with Multiple Setup Costs

Author

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  • Osman Alp

    (Department of Industrial Engineering, TED University, 06420 Ankara, Turkey)

  • Woonghee Tim Huh

    (Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

  • Tarkan Tan

    (School of Industrial Engineering, Eindhoven University of Technology, 5600 MB Eindhoven, The Netherlands)

Abstract

We consider an infinite-horizon, periodic-review, single-item production/inventory system with random demand and backordering, where multiple setups are allowed in any period and a separate fixed cost is associated for each setup. Contrary to the majority of the literature on this topic, we do not restrict the order quantities to be integer multiples of the exogenously given batch size and instead allow the possibility of partial batches, in which case the fixed cost for ordering the batch is still fully charged. We build a model that particularly takes the batch-ordering cost structure into account. We introduce an alternative cost-accounting scheme to analyze the problem, which we use to develop a computationally efficient optimal solution method and several properties of the optimal solution. In addition, we propose two heuristic policies, both of which perform extremely well computationally.

Suggested Citation

  • Osman Alp & Woonghee Tim Huh & Tarkan Tan, 2014. "Inventory Control with Multiple Setup Costs," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 89-103, February.
    • Handle: RePEc:inm:ormsom:v:16:y:2014:i:1:p:89-103
    DOI: 10.1287/msom.2013.0450
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    References listed on IDEAS

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    Cited by:

    1. Liqing Zhang & Sıla Çetinkaya, 2017. "Stochastic Dynamic Inventory Problem Under Explicit Inbound Transportation Cost and Capacity," Operations Research, INFORMS, vol. 65(5), pages 1267-1274, October.
    2. Sandun C. Perera & Suresh P. Sethi, 2023. "A survey of stochastic inventory models with fixed costs: Optimality of (s, S) and (s, S)‐type policies—Continuous‐time case," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 154-169, January.
    3. Gan, Xianghua & Sethi, Suresh P. & Xu, Liang, 2019. "Simultaneous Optimization of Contingent and Advance Purchase Orders with Fixed Ordering Costs," Omega, Elsevier, vol. 89(C), pages 227-241.
    4. 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.
    5. Shuangchi He & Dacheng Yao & Hanqin Zhang, 2017. "Optimal Ordering Policy for Inventory Systems with Quantity-Dependent Setup Costs," Mathematics of Operations Research, INFORMS, vol. 42(4), pages 979-1006, November.

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