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Technical note: Worst‐case performance of power‐of‐two policies for serial inventory systems with incremental quantity discounts

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  • Brian Q. Rieksts
  • José A. Ventura
  • Yale T. Herer
  • Daning Sun

Abstract

This study presents power‐of‐two policies for a serial inventory system with constant demand rate and incremental quantity discounts at the most upstream stage. It is shown that an optimal solution is nested and follows a zero‐inventory ordering policy. To prove the effectiveness of power‐of‐two policies, a lower bound on the optimal cost is obtained. A policy that has a cost within 6% of the lower bound is developed for a fixed base planning period. For a variable base planning period, a 98% effective policy is provided. An extension is included for a system with price dependent holding costs. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007

Suggested Citation

  • Brian Q. Rieksts & José A. Ventura & Yale T. Herer & Daning Sun, 2007. "Technical note: Worst‐case performance of power‐of‐two policies for serial inventory systems with incremental quantity discounts," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(5), pages 583-587, August.
    • Handle: RePEc:wly:navres:v:54:y:2007:i:5:p:583-587
    DOI: 10.1002/nav.20220
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    References listed on IDEAS

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    1. Derek Atkins & Daning Sun, 1995. "98%-Effective Lot Sizing for Series Inventory Systems with Backlogging," Operations Research, INFORMS, vol. 43(2), pages 335-345, April.
    2. William L. Maxwell & John A. Muckstadt, 1985. "Establishing Consistent and Realistic Reorder Intervals in Production-Distribution Systems," Operations Research, INFORMS, vol. 33(6), pages 1316-1341, December.
    3. Stephen F. Love, 1972. "A Facilities in Series Inventory Model with Nested Schedules," Management Science, INFORMS, vol. 18(5-Part-1), pages 327-338, January.
    4. Benton, W. C. & Park, Seungwook, 1996. "A classification of literature on determining the lot size under quantity discounts," European Journal of Operational Research, Elsevier, vol. 92(2), pages 219-238, July.
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    1. Adeinat, Hamza & Pazhani, Subramanian & Mendoza, Abraham & Ventura, Jose A., 2022. "Coordination of pricing and inventory replenishment decisions in a supply chain with multiple geographically dispersed retailers," International Journal of Production Economics, Elsevier, vol. 248(C).

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