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Production-Inventory Decisions under Order-Occurrence Risk: The Deterministic Order Quantity Case

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  • Richard R. Jesse, Jr.

    (University of Florida)

Abstract

This paper examines the problem of production-inventory decisions under order-occurrence risk. To characterize this problem briefly, let the number of periods which elapse between the receipt of orders n and n + 1 for an item be described by a probability mass function f n (s). If f n (\infty ) > 0, then order-occurrence risk is said to exist. That is, upon receiving order n for an item, there exists a positive probability that no future orders will occur. Assuming deterministic order quantities, the order-occurrence risk problem is formulated as a dynamic program. Optimal production-inventory disposal policies are characterized for the case of piecewise-linear production-disposal costs and concave increasing holding costs. The production cost is assumed to include a setup cost, and demand backlogging is not permitted. The production and disposal lead times are assumed to be zero.

Suggested Citation

  • Richard R. Jesse, Jr., 1976. "Production-Inventory Decisions under Order-Occurrence Risk: The Deterministic Order Quantity Case," Management Science, INFORMS, vol. 22(6), pages 664-676, February.
    • Handle: RePEc:inm:ormnsc:v:22:y:1976:i:6:p:664-676
    DOI: 10.1287/mnsc.22.6.664
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