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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