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Technical Note—Managing Nonperishable Inventories with Learning About Demand Arrival Rate Through Stockout Times

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  • Alain Bensoussan

    (Jindal School of Management, University of Texas at Dallas, Richardson, Texas; and Department of System Engineering and Engineering Management, City University of Hong Kong, Kowloon, Hong Kong)

  • Pengfei Guo

    (Faculty of Business, Hong Kong Polytechnic University, Kowloon, Hong Kong)

Abstract

We study a periodic review inventory model with a nonperishable product over an infinite planning horizon. The demand for the nonperishable product arrives according to a Poisson process. Lost sales are unobservable but the stockout times are observable. We formulate the problem as a dynamic programming model with learning on arrival rate according to stockout times and further simplify it by using unnormalized probabilities. We then compare the system performance with those under other two information scenarios where lost sales are observable or both lost sales and stockout times are unobservable. We show that the optimal inventory order-up-to level with observable stockout times is larger than the one with observable lost sales. We also show that more information improves the system performance.

Suggested Citation

  • Alain Bensoussan & Pengfei Guo, 2015. "Technical Note—Managing Nonperishable Inventories with Learning About Demand Arrival Rate Through Stockout Times," Operations Research, INFORMS, vol. 63(3), pages 602-609, June.
    • Handle: RePEc:inm:oropre:v:63:y:2015:i:3:p:602-609
    DOI: 10.1287/opre.2015.1376
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    References listed on IDEAS

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    Cited by:

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