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The discounted (R,Q) inventory model—The Shrewd Accountant's Heuristic

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  • Farvid, Mojtaba
  • Rosling, Kaj

Abstract

The discounted continuous-review (R,Q) inventory model with continuous and stochastic demand is investigated. New optimality conditions are derived, clarifying the difference to the average-cost case, also graphically. Supported by depreciation theory, applied to the value of a setup, the results suggest an insightful and very precise approximation – The Shrewd Accountant's Heuristic – based on a new average-cost model. It deepens and extends the work of Hadley (1964). Three examples are worked out in detail and the model is generalized to Poisson demand and to stochastic lead-times.

Suggested Citation

  • Farvid, Mojtaba & Rosling, Kaj, 2014. "The discounted (R,Q) inventory model—The Shrewd Accountant's Heuristic," International Journal of Production Economics, Elsevier, vol. 149(C), pages 17-27.
    • Handle: RePEc:eee:proeco:v:149:y:2014:i:c:p:17-27
    DOI: 10.1016/j.ijpe.2013.02.010
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    References listed on IDEAS

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    Cited by:

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