Optimal Inventory Policy Involving Ordering Cost Reduction, Back-Order Discounts, and Variable Lead Time Demand by Minimax Criterion

Abstract EN

This paper allows the backorder rate as a control variable to widen applications of a continuous review inventory model.

Moreover, we also consider the backorder rate that is proposed by combining Ouyang and Chuang (2001) (or Lee (2005)) with Pan and Hsiao (2001) to present a new form.

Thus, the backorder rate is dependent on the amount of shortages and backorder price discounts.

Besides, we also treat the ordering cost as a decision variable.

Hence, we develop an algorithmic procedure to find the optimal inventory policy by minimax criterion.

Finally, a numerical example is also given to illustrate the results.