A Note on the Applicability of Federgruen and Zheng S Algorithm for Computing Optimal (R,Q) Inventory Policies

Abstract

Care must be taken in extending the formulation and solution methodology of Federgruen and Zheng (1992) to include a stockout cost of a different dimensionality: $/unit, rather than $/unit/year. Federgruen and Zheng formulate this extended model for Poisson demand. We modify their formulation to allow for a much broader class of demand processes, and show via counter examples that the elegant solution methodology developed in Federgruen and Zheng cannot be brought to bear upon the more general problems.

JEL Classification: C61, C63, L0