Computationally Simple and Unified Approach to Finite and Infinite Horizon Clark-Scarf Inventory Model
31 Pages Posted: 28 May 2010 Last revised: 3 Apr 2012
Date Written: May 27, 2010
We show that an easily computed and simply structured policy for making workorder decisions is optimal in the Clark-Scarf inventory model. That is a model of a make-to-stock multistage serial manufacturing process with convex costs of finished goods inventory, a set-up cost for purchasing, linear costs of work-in-process inventories, and backlogging of excess demand. The criteria here include the expected present value of costs (in finite and infinite horizons) and long-run average cost per period. Moreover, the same myopic policy that is optimal for the finite horizon model is optimal also for the infinite horizon model. This permits a unified approach to the various criteria.
Keywords: MDP, Myopic Policies, Inventory Policies, Serial Inventory System
JEL Classification: B11, C61, C63
Suggested Citation: Suggested Citation