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Old and New Methods for Lost-Sales Inventory Systems

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  • Paul Zipkin

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

Abstract

We consider the notoriously difficult discrete-time inventory model with stochastic demands, a constant lead time, and lost sales. We show that the effective state space is a relatively manageable compact set. Then, we test various plausible heuristics. We find that several perform reasonably well, although none is perfect. However, the standard base-stock policy (a direct analogue of the optimal policy for a backlog system) performs badly. We also show that the optimal cost is increasing in the lead time.

Suggested Citation

  • Paul Zipkin, 2008. "Old and New Methods for Lost-Sales Inventory Systems," Operations Research, INFORMS, vol. 56(5), pages 1256-1263, October.
    • Handle: RePEc:inm:oropre:v:56:y:2008:i:5:p:1256-1263
    DOI: 10.1287/opre.1070.0471
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    References listed on IDEAS

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