An Ecient Procedure for Computing an Optimal (R,Q) Policy in Continuous Review Systems with Poisson Demands and Constant Lead Time

Authors

Department of Industrial Engineering,Sharif University of Technology

Abstract

In this paper, a continuous review inventory system is considered in which an order in
a batch of size Q is placed immediately after the inventory position reaches R. Transportation time is
constant and demands are assumed to be generated by a stationary Poisson process with one unit demand
at a time. Demands not covered immediately from the inventory are backordered. In a recent paper, the
exact evaluation of batch-ordering policies for two-level inventory systems was derived. This evaluation is
based on a recursive procedure for determining the exact policy costs in case of one-for-one replenishment
policies. In this paper, we show how this result can be applied to nd the optimal solution of a (R;Q)
policy. To obtain the optimal policy for this system, considering a one-for-one policy, we will rst solve
the base stock model by setting the inventory position at the supplier to a certain value. By considering
ordering cost, we next derive the cost function of the de ned (R;Q) model and nd the optimal solution
for the exact value of the expected system costs using a search method. In demonstrating the applicability
of the proposed method, we resort to solving an example.

Keywords