Inventory Models with Fixed Costs, Forecast Updates, and Two Delivery Modes

Operations Research, Vol. 51, No. 2, pp. 321-328, March-April 2003

18 Pages Posted: 29 Apr 2008 Last revised: 24 Mar 2011

See all articles by Suresh Sethi

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management

Hanqin Zhang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences

Date Written: March 23, 2011

Abstract

This paper is concerned with a periodic review inventory system with fast and slow delivery modes, fixed ordering cost, and regular demand forecast updates. At the beginning of each period, on-hand inventory and demand information are updated. At the same time, decisions on how much to order using fast and slow delivery modes are made. Fast and slow orders are delivered at the end of the current period and at the end of the next period, respectively. A forecast-update-dependent (s, S)-type policy is shown to be optimal. Also shown are some monotonicity properties of the policy parameters with respect to the costs and information updates.

Keywords: dynamic inventory model,(s, S) policy, optimization, dynamic programming, Markovian demand, production scheduling, overhrad costs, multiple delivery modes, fixed cost, forecast updates

JEL Classification: M11, C61, D83

Suggested Citation

Sethi, Suresh and Yan, Houmin and Zhang, Hanqin, Inventory Models with Fixed Costs, Forecast Updates, and Two Delivery Modes (March 23, 2011). Operations Research, Vol. 51, No. 2, pp. 321-328, March-April 2003. Available at SSRN: https://ssrn.com/abstract=1126105 or http://dx.doi.org/10.2139/ssrn.1126105

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management ( email )

Shatin, New Territories
Hong Kong

Hanqin Zhang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences ( email )

Zhong-Guan-Cun-Dong-Lu 55, Haidian District
Beijing, Beijing 100080
China

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