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Optimal policy for a dynamic, non-stationary, stochastic inventory problem with capacity commitment

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  • Xu, Ningxiong

Abstract

This paper studies a single-product, dynamic, non-stationary, stochastic inventory problem with capacity commitment, in which a buyer purchases a fixed capacity from a supplier at the beginning of a planning horizon and the buyer's total cumulative order quantity over the planning horizon is constrained with the capacity. The objective of the buyer is to choose the capacity at the beginning of the planning horizon and the order quantity in each period to minimize the expected total cost over the planning horizon. We characterize the structure of the minimum sum of the expected ordering, storage and shortage costs in a period and thereafter and the optimal ordering policy for a given capacity. Based on the structure, we identify conditions under which a myopic ordering policy is optimal and derive an equation for the optimal capacity commitment. We then use the optimal capacity and the myopic ordering policy to evaluate the effect of the various parameters on the minimum expected total cost over the planning horizon.

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  • Xu, Ningxiong, 2009. "Optimal policy for a dynamic, non-stationary, stochastic inventory problem with capacity commitment," European Journal of Operational Research, Elsevier, vol. 199(2), pages 400-408, December.
  • Handle: RePEc:eee:ejores:v:199:y:2009:i:2:p:400-408
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    References listed on IDEAS

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    Cited by:

    1. Xu, Ningxiong, 2011. "Myopic optimal policy for a multi-period, two-delivery-lead-times, stochastic inventory problem with minimum cumulative commitment and capacity," International Journal of Production Economics, Elsevier, vol. 133(2), pages 719-727, October.
    2. Saif Benjaafar & David Chen & Rowan Wang, 2017. "Managing Production-Inventory Systems with Scarce Resources," Manufacturing & Service Operations Management, INFORMS, vol. 19(2), pages 216-229, May.

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