Technical note: Worst‐case performance of power‐of‐two policies for serial inventory systems with incremental quantity discounts | Zendy

Rieksts Brian Q. | Zendy; Ventura José A. | Zendy; Herer Yale T. | Zendy; Sun Daning | Zendy

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Technical note: Worst‐case performance of power‐of‐two policies for serial inventory systems with incremental quantity discounts

Author(s) -

Rieksts Brian Q.,

Ventura José A.,

Herer Yale T.,

Sun Daning

Publication year - 2007

Publication title -

naval research logistics (nrl)

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.665

H-Index - 68

eISSN - 1520-6750

pISSN - 0894-069X

DOI - 10.1002/nav.20220

Subject(s) - upstream (networking) , holding cost , power (physics) , upper and lower bounds , variable (mathematics) , base (topology) , operations research , economics , constant (computer programming) , operations management , computer science , microeconomics , mathematical optimization , mathematics , computer network , mathematical analysis , physics , quantum mechanics , programming language

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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