Research Reports from the Department of Operations
Document Type
Report
Publication Date
1-1-1972
Abstract
The work in this research falls in the area of operations research known as inventory theory, concentrating on inventory cost parameters (or functions) in general and on the development of a model to evaluate shortage cost in particular. The inventory policy (Q,S,R) with constant lead time L is introduced, where Q is the constant size of orders, S the reorder level and R is the upper limit for the backlogged demand. Associated with the (Q,S,R) policy a (R+S+2)-state semi-Markov process is defined the states corresponding to no-stockout durations starting initially with various levels of physical inventory and to stockout duration within which backlogged demand is always non-negative. For the stockout duration of a given length, a model is developed to compute immediate shortage cost, a cost resulting from stockout conditions but not including the cost due to loss of goodwill, by using a queueing-theoretic approach. A formula to estimate the discounted cost due to loss of goodwill for an infinite time horizon is also derived by employing the concepts and results of semi-Markov processes.
Keywords
Operations research, Inventory control--Mathematical models, Stochastic processes, Markov processes, Queuing theory, Decision making--Mathematical models
Publication Title
Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 257
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Oral, Muhittin, "Inventory Cost Parameters" (1972). Research Reports from the Department of Operations. 263.
https://commons.case.edu/wsom-ops-reports/263