Optimality of (s, S) Policies in Inventory Models with Markovian Demand

Operations Research, Vol. 45, No. 6, pp. 931-939, 1997

9 Pages Posted: 29 Apr 2008 Last revised: 26 Apr 2014

See all articles by Suresh Sethi

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Feng Cheng

IBM Research

Date Written: December 1995

Abstract

This paper is concerned with a generalization of classical inventory models (with fixed ordering costs) that exhibit (s, S) policies. In our model, the distribution of demands in successive periods is dependent on a Markov chain. The model includes the case of cyclic or seasonal demand. The model is further extended to incorporate some other realistic features such as no ordering periods and storage and service level constraints. Both finite and infinite horizon nonstationary problems are considered. We show that (s, S) policies are also optimal for the generalized model as well as its extensions.

Keywords: dynamic inventory model, Markov chain, (s, S) policy, optimization, dynamic programming, Markovian demand, Markov modulated demand, production scheduling, overhead costs

JEL Classification: M11, C61, M20

Suggested Citation

Sethi, Suresh and Cheng, Feng, Optimality of (s, S) Policies in Inventory Models with Markovian Demand (December 1995). Operations Research, Vol. 45, No. 6, pp. 931-939, 1997, Available at SSRN: https://ssrn.com/abstract=1126048 or http://dx.doi.org/10.2139/ssrn.1126048

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

Feng Cheng

IBM Research ( email )

T. J. Watson Research Center
1 New Orchard Road
Armonk, NY 10504-1722
United States

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