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Inventory Control with Probabilistic Demand and Periodic Withdrawals

Author

Listed:
  • Warren H. Hausman

    (Massachusetts Institute of Technology)

  • L. Joseph Thomas

    (Cornell University)

Abstract

Many manufacturing firms produce component parts both for assembly into new products and to meet orders for spare parts. An inventory model for this situation would involve two types of demands: probabilistic demand as spares and deterministic (or scheduled) withdrawals as components for assembly. Relevant costs would include a setup cost for replenishment orders, inventory carrying costs, and backorder costs. An analytical model approximating these characteristics is formulated. An optimal dynamic program for the periodic review case is briefly discussed; this policy is extremely costly to implement, however. Two feasible operating policies are considered in the paper: a continuous review (Q, r)-type policy and a simple periodic review scheduling heuristic. The paper concludes with sample economic comparisons of the cost of the (Q, r)-type policy and the heuristic policy for a set of numerical examples.

Suggested Citation

  • Warren H. Hausman & L. Joseph Thomas, 1972. "Inventory Control with Probabilistic Demand and Periodic Withdrawals," Management Science, INFORMS, vol. 18(5-Part-1), pages 265-275, January.
    • Handle: RePEc:inm:ormnsc:v:18:y:1972:i:5-part-1:p:265-275
    DOI: 10.1287/mnsc.18.5.265
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