Technical note: Worst‐case performance of power‐of‐two policies for serial inventory systems with incremental quantity discounts |
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| Authors: | Brian Q. Rieksts José A. Ventura Yale T. Herer Daning Sun |
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| Affiliation: | 1. Institute for Defense Analyses, CARD, 4850 Mark Center Drive, Alexandria, Virginia 22311;2. Harold and Inge Marcus Department of Industrial and Manufacturing Engineering, The Pennsylvania State University, University Park, Pennsylvania 16802Harold and Inge Marcus Department of Industrial and Manufacturing Engineering, The Pennsylvania State University, University Park, Pennsylvania 16802;3. William Davidson Faculty of Industrial Engineering and Management, Technion ‐ Israel Institute of Technology, Technion City, Haifa 32000, Israel;4. Department of Computing and Decision Sciences, Lingnan University, Hong Kong, China |
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| Abstract: | This study presents power‐of‐two policies for a serial inventory system with constant demand rate and incremental quantity discounts at the most upstream stage. It is shown that an optimal solution is nested and follows a zero‐inventory ordering policy. To prove the effectiveness of power‐of‐two policies, a lower bound on the optimal cost is obtained. A policy that has a cost within 6% of the lower bound is developed for a fixed base planning period. For a variable base planning period, a 98% effective policy is provided. An extension is included for a system with price dependent holding costs. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007 |
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| Keywords: | inventory/production power‐of‐two policies multi‐stage with incremental quantity discounts |
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