Optimal Control Policy of an Inventory System with Postponed Demand

Abstract

This paper deals with the problem of controlling the selection rates of the pooled customer of a single commodity inventory system with postponed demands. The demands arrive according to a Poisson process. The maximum inventory level is fixed at S . The ordering policy is (s,S ) policy that is as and when the inventory level drops to s an order for Q ( = S − s ) items is placed. The ordered items are received after a random time, which is distributed as exponential. We assume that the demands that occur during stock out period either enter a pool of finite size or leave the system according to a Bernoulli distribution. Whenever the on-hand inventory level is positive, customers are selected one-by-one and the selection rate can be chosen from a given set. The problem is to determine a decision rule that specifies the rate of these selections as a function of the on-hand inventory level and the number of customers waiting in the pool at each instant of time to minimise the long-run total expected cost rate. The problem is modelled as a semi-Markov decision problem. The optimal policy is computed using Linear Programming algorithm and the results are illustrated numerically.