Single item inventory control under periodic review and a minimum order quantity |
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Authors: | GP Kiesmüller AG de KokS Dabia |
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Institution: | a Institut für Betriebswirtschaftslehre, Christian-Albrechts-Universität zu Kiel, Olshausenstraße 40, D-24098 Kiel, Germany b Department of Industrial Engineering and Innovation Sciences, Technische Universiteit Eindhoven, P.O. Box 513, 5600 MB Eindhoven, The Netherlands |
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Abstract: | In this paper we study a periodic review single item single stage inventory system with stochastic demand. In each time period the system must order none or at least as much as a minimum order quantity Qmin. Since the optimal structure of an ordering policy with a minimum order quantity is complicated, we propose an easy-to-use policy, which we call (R, S, Qmin) policy. Assuming linear holding and backorder costs we determine the optimal numerical value of the level S using a Markov Chain approach. In addition, we derive simple news-vendor-type inequalities for near-optimal policy parameters, which can easily be implemented within spreadsheet applications. In a numerical study we compare our policy with others and test the performance of the approximation for three different demand distributions: Poisson, negative binomial, and a discretized version of the gamma distribution. Given the simplicity of the policy and its cost performance as well as the excellent performance of the approximation we advocate the application of the (R, S, Qmin) policy in practice. |
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Keywords: | Stochastic inventory model Minimum order quantity Markov Chain News-vendor inequality |
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