Stochastic inventory models with limited production capacity and periodically varying parameters

Yossi Aviv, Awi Federgruen

Research output: Contribution to journalArticlepeer-review

Abstract

We consider a single-item, periodic-review inventory model with uncertain demands in which each period's production volume is limited by a capacity level. The demand distributions, capacity levels, and cost parameters vary according to a periodic pattern. We prove that modified base-stock policies are optimal for the finite-horizon planning model and for both the infinite-horizon discounted and undiscounted cost criterion. We further show that the optimal base-stock levels can be calculated via a simple but efficient value-iteration method. Finally, we have conducted a comprehensive numerical study to ascertain the efficiency of this solution method as well as various qualitative properties of the performance of capacitated production/inventory systems under periodically varying demand and cost patterns.

Original languageEnglish
Pages (from-to)107-135
Number of pages29
JournalProbability in the Engineering and Informational Sciences
Volume11
Issue number1
DOIs
StatePublished - 1997
Externally publishedYes

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