Asmussen S

Dacheng Yao

Dixit A

Hanqin Zhang

Karlin S

Kyprianou AE

Perera S

Porteus EL

Protter MH

Scarf H

Shuangchi He

Zipkin PH

 We consider a continuous-review inventory system in which the setup cost of each order is a general function of the order quantity and the demand process is modeled as a Brownian motion with a positive drift. Assuming the holding and shortage cost to be a convex function of the inventory level, we obtain the optimal ordering policy that minimizes the long-run average cost by a lower bound approach. To tackle some technical issues in the lower bound approach under the quantity-dependent setup cost assumption, we establish a comparison theorem that enables one to prove the global optimality of a policy by examining a tractable subset of admissible policies. Since the smooth pasting technique does not apply to our Brownian inventory model, we also propose a selection procedure for computing optimal policy parameters when the setup cost is a step function. </jats:p

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Mathematics of Operations Research

Optimal Ordering Policy for Inventory Systems with Quantity-Dependent Setup Costs

Optimal Ordering Policy for Inventory Systems with Quantity-Dependent Setup Costs

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