Optimality and Nonoptimality of the Base-Stock Policy in Inventory Problems with Multiple Delivery Modes

Abstract

We present a periodic review inventory model with multiple delivery modes. We generalize the notion of the base-stock policy for inventory systems with multiple delivery modes. While base-stock policies are optimal for one or two consecutive delivery modes, it is not so otherwise. For multiple consecutive delivery modes, we show that only the fastest two modes have optimal base stocks, and provide simple counterexamples to show that the remaining ones do not in general. We investigate why the base-stock policy is not optimal through detailed analyses of two numerical examples.

Keywords: inventory models, inventory/production, uncertainty, multiple delivery modes, base-stock policies,dynamic programming

JEL Classification: C61, M11