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IOR

2010

2010

We consider a single-item, periodic review inventory control problem where discrete stochastic demand must be satisﬁed. When shortages occur, the unmet demand must be ﬁlled by some form of expediting. We allow a very general form for the cost structure of expediting. This expediting might include in-house rush production, outsourcing, or even lost sales. However, we explicitly consider the case where expedited production is allowed to produce up to a positive inventory level. For the inﬁnite horizon discounted problem, we characterize the structure of the optimal expediting policy and show that an (s, S) policy is optimal for regular production. In certain cases we demonstrate that it may indeed be optimal to use expedited production to build up inventory. A heuristic for policy calculation is given; a numerical study tests the heuristic and add insight into the results.

Related Content

Added |
28 Jan 2011 |

Updated |
28 Jan 2011 |

Type |
Journal |

Year |
2010 |

Where |
IOR |

Authors |
Eric Logan Huggins, Tava Lennon Olsen |

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