Technical Note—New Sufficient Conditions for (s, S) Policies to be Optimal in Systems with Multiple Uncertainties
Lucy Gongtao Chen, Lawrence W. Robinson, Robin O. Roundy, Rachel Q. Zhang
Operations Research · 2015 · Volume 63 · Issue 1
Abstract
In today’s business environment, unpredictable economic and noneconomic forces can affect firms’ operational costs and discount factors, as well as demand. In this paper, we incorporate these uncertainties into a single-product, periodic-review, finite-horizon stochastic inventory system by modeling operational costs, discount factors, and demands as stochastic processes that evolve over time. We study three stockout protocols and establish conditions under which ( s, S ) inventory policies are optimal when discount factors, operational costs, and demands are stochastic and correlated both to one another and over time. Examples are provided to demonstrate nontrivial optimal policies in the absence of these sufficient conditions.
Keywords
inventory policy, stochastic discount factor, multiple uncertainties
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