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Optimal Inventory Policy

Kenneth J. Arrow, Theodore Harris and Jacob Marschak
Econometrica
Vol. 19, No. 3 (Jul., 1951), pp. 250-272
Published by: The Econometric Society
DOI: 10.2307/1906813
Stable URL: http://www.jstor.org/stable/1906813
Page Count: 23
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Optimal Inventory Policy
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Abstract

Optimal inventory policy is first derived for a simple model in which the future (and constant) demand flow and other relevant quantities are known in advance. This is followed by the study of uncertainty models--a static and a dynamic one--in which the demand flow is a random variable with a known probability distribution. The best maximum stock and the best reordering point are determined as functions of the demand distribution, the cost of making an order, and the penalty of stock depletion.

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