A simple heuristic for computing non-stationary inventory policies based on function approximation

Onur A. Kilic*, S. Armagan Tarim

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)
26 Downloads (Pure)

Abstract

We consider a finite-horizon periodic-review inventory system with fixed replenishment costs that faces non-stationary demands. The structure of the optimal control policy for this system has long been known. However, finding optimal policy parameters requires solving a large-scale stochastic dynamic program. To circumvent this, we devise a recursion-free approximation for the cost function of the problem. This translates into an efficient and effective heuristic to compute policy parameters that significantly outperforms earlier heuristics. Our approach is easy-to-understand and easy-to-use as it follows by elementary methods of shortest paths and convex minimization.

Original languageEnglish
Pages (from-to)899-905
Number of pages7
JournalEuropean Journal of Operational Research
Volume316
Issue number3
Early online date13-Feb-2024
DOIs
Publication statusPublished - 1-Aug-2024

Keywords

  • Approximation
  • Heuristic
  • Inventory
  • Non-stationary demand
  • Stochastic

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