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An easy derivation of the order optimality condition for inventory systems with backordering

Author

Listed:
  • Teunter, R.H.
  • Dekker, R.

Abstract

We analyze the classical inventory model with backordering, where the inventory position is controlled by an order level, order quantity policy. The cost for a backorder contains a fixed and a time-proportional component. Demand can be driven by any discrete process. Order lead times may be stochastic and orders are allowed to cross. The optimality condition for the order-level, given some predetermined order quantity, is derived using an easy and insightful marginal cost analysis. It is further shown how this condition can easily be (approximately) rewritten in well-known forms for special cases.

Suggested Citation

  • Teunter, R.H. & Dekker, R., 2001. "An easy derivation of the order optimality condition for inventory systems with backordering," Econometric Institute Research Papers EI 2001-41, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:1712
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