Optimal continuous order quantity (s,S) policies - the 45-degrees algorithm
AbstractThe most recent optimization algorithm for (s,S) order policies with continuous demand wasdeveloped by Federgruen and Zipkin (1985). This was also the first efficient algorithm,which uses policy iteration instead of discretization. Zheng and Federgruen (1991) developedan even more efficient algorithm for computing discrete order quantity (s,S) inventorypolicies. Since the continuous case prohibits enumeration, this algorithm does not apply tocontinuous order quantity systems. In this paper an efficient algorithm for continuous orderquantity (s,S) policies is developed. A marginal cost approach is used for determining theoptimal s. Furthermore, we construct two aid functions (generated by the optimalityconditions for s and S), and exploiting their special properties a simple and efficientalgorithm is obtained. The algorithm converges monotonically, such that at every iteration apolicy improvement is obtained. Since every iteration finds a local minimum of the expectedaverage cost, the number of iterations is at most N, where N
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Bibliographic InfoPaper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2002-47.
Date of creation: 04 Jul 2003
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