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Incremental quantity discounts in a periodic-review stochastic inventory model with a general demand distribution

Author

Listed:
  • Jun-Yeon Lee
  • Ali Behnezhad

Abstract

We examine a periodic-review stochastic inventory model in which the buyer places orders to meet stochastic demands under an incremental quantity discount schedule with a single price-break point. With a general demand distribution, we prove the optimality of a state-dependent base-stock policy for the single-period problem and provide simple bounds on the optimal order-up-to levels for the multiple-period problem. We also solve the infinite horizon problem by using the policy iteration method. Our computational results suggest that a state-dependent base-stock policy is also optimal for the multiple-period and infinite-horizon problems.

Suggested Citation

  • Jun-Yeon Lee & Ali Behnezhad, 2015. "Incremental quantity discounts in a periodic-review stochastic inventory model with a general demand distribution," International Journal of Mathematics in Operational Research, Inderscience Enterprises Ltd, vol. 7(2), pages 178-193.
    • Handle: RePEc:ids:ijmore:v:7:y:2015:i:2:p:178-193
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