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An intuitive approach to inventory control with optimal stopping

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  • Van Foreest, Nicky D.
  • Kilic, Onur A.

Abstract

In this research note, we show that a simple application of Breiman’s work on optimal stopping in 1964 leads to an elementary proof that (s,S) policies minimize the long-run average cost for periodic-review inventory control problems. The method of proof is appealing as it only depends on the fundamental concepts of renewal-reward processes, optimal stopping, dynamic programming, and root-finding. Moreover, it leads to an efficient algorithm to compute the optimal policy parameters. If Breiman’s paper would have received the attention it deserved, computational methods dealing with (s,S)-policies would have been found about three decades earlier than the famous algorithm of Zheng and Federgruen (1991).

Suggested Citation

  • Van Foreest, Nicky D. & Kilic, Onur A., 2023. "An intuitive approach to inventory control with optimal stopping," European Journal of Operational Research, Elsevier, vol. 311(3), pages 921-924.
    • Handle: RePEc:eee:ejores:v:311:y:2023:i:3:p:921-924
    DOI: 10.1016/j.ejor.2023.05.035
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    References listed on IDEAS

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