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Computing optimal (s, S) policies in inventory models with continuous demands

Published online by Cambridge University Press:  01 July 2016

A. Federgruen  and
P. Zipkin
A. Federgruen
Affiliation:
Columbia University
P. Zipkin*
Affiliation:
Columbia University
*
∗Postal address: Graduate School of Business, Columbia University, Uris Hall, New York, NY 10027, USA.
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Abstract

Special algorithms have been developed to compute an optimal (s, S) policy for an inventory model with discrete demand and under standard assumptions (stationary data, a well-behaved one-period cost function, full backlogging and the average cost criterion). We present here an iterative algorithm for continuous demand distributions which avoids any form of prior discretization. The method can be viewed as a modified form of policy iteration applied to a Markov decision process with continuous state space. For phase-type distributions, the calculations can be done in closed form.

Keywords

POLICY ITERATION
Type
Research Article
Information
Advances in Applied Probability , Volume 17 , Issue 2 , June 1985 , pp. 424 - 442
Copyright
Copyright © Applied Probability Trust 1985 

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