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Old and New Methods for Lost-Sales Inventory Systems

Paul Zipkin

Fuqua School of Business, Duke University, Durham, North Carolina 27708

Operations Research 2008

We consider the notoriously difficult discrete-time inventory model with stochastic demands, a constant lead time, and lost sales. We show that the effective state space is a relatively manageable compact set. Then, we test various plausible heuristics. We find that several perform reasonably well, although none is perfect. However, the standard base-stock policy (a direct analogue of the optimal policy for a backlog system) performs badly. We also show that the optimal cost is increasing in the lead time.

DOI
10.1287/opre.1070.0471
Volume
56 (5)
Pages
1256-1263
Language
en
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