On the Optimal Policy for the Single-product Inventory Problem with Set-up Cost and a Restricted Production Capacity

N. D. van Foreest, J. Wijngaard


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The single-product, stationary inventory problem with set-up cost is one of the classical problems in stochastic operations research. Theories have been developed to cope with finite production capacity in periodic review systems, and it has been proved that optimal policies for these cases are not of the (modified) (s, S)-type in general, but more complex. In this paper we consider a production system such that the production rate is constrained, rather than the amount as is common in periodic review models. Thus, in our case the production rate is positive and finite when the system is on and zero when off, while a cost is incurred to switching on or off. We prove that a long-run optimal stationary policy exists for this single-item continuous review inventory problem with non-zero switching cost and finite production rate, and that this optimal policy has an (s,S)-structure. We also provide an efficient numerical procedure to compute the parameters of the optimal policy.
Originele taal-2English
Plaats van productieGroningen
UitgeverUniversity of Groningen, SOM research school
Aantal pagina's12
StatusPublished - 2010

Publicatie series

NaamSOM Research Reports
UitgeverijUniversity of Groningen, SOM Research School

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