Download This PaperAverage-Cost Optimality of a Base-Stock Policy for a Multi-Product Inventory Model with Limited Storage
Proceedings of the International Workshop on Decision and Control in Management Sciences in honor of Professor Alain Haurie, Montreal, Quebec, Canada, Oct. 19-20, 2000, Decision and Control in Management Science, Essays in Honor of Alain Haurie, G. Zaccour (Ed.), Kluwer Academic Publishers, Boston,
18 Pages Posted: 6 May 2020
Date Written: July 2000
Abstract
We consider a stochastic multi-product inventory model with a ware-housing constraint with the objective of minimizing the expected long-run average cost. Using the vanishing discount approach, a dynamic programming equation and the corresponding verification result are established. The structure of optimal policies is analyzed when ordering cost of the commodities is linear and the inventory/backlog cost is convex. The optimal policy is shown to be a base-stock policy, in contrast to a modified base-stock policy optimal in the discounted cost version of the problem.
Keywords: Multi product inventory model, warehousing constraint, dynamic programming, base-stock policy, average cost
JEL Classification: M11, M20, C61, C40, C10, D83
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