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Optimal Inventory Policy Involving Ordering Cost Reduction, Back-Order Discounts, and Variable Lead Time Demand by Minimax Criterion

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  • Jong-Wuu Wu
  • Wen-Chuan Lee
  • Chia-Ling Lei

Abstract

This paper allows the backorder rate as a control variable to widen applications of a continuous review inventory model. Moreover, we also consider the backorder rate that is proposed by combining Ouyang and Chuang (2001) (or Lee (2005)) with Pan and Hsiao (2001) to present a new form. Thus, the backorder rate is dependent on the amount of shortages and backorder price discounts. Besides, we also treat the ordering cost as a decision variable. Hence, we develop an algorithmic procedure to find the optimal inventory policy by minimax criterion. Finally, a numerical example is also given to illustrate the results.

Suggested Citation

  • Jong-Wuu Wu & Wen-Chuan Lee & Chia-Ling Lei, 2009. "Optimal Inventory Policy Involving Ordering Cost Reduction, Back-Order Discounts, and Variable Lead Time Demand by Minimax Criterion," Mathematical Problems in Engineering, Hindawi, vol. 2009, pages 1-19, July.
    • Handle: RePEc:hin:jnlmpe:928932
    DOI: 10.1155/2009/928932
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