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Production-Inventory Decisions under Order-Occurrence Risk: The Deterministic Order Quantity Case

Richard R. Jesse, Jr.
Management Science
Vol. 22, No. 6 (Feb., 1976), pp. 664-669
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/2629936
Page Count: 6
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Production-Inventory Decisions under Order-Occurrence Risk: The Deterministic Order Quantity Case
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Abstract

This paper examines the problem of production-inventory decisions under order-occurrence risk. To characterize this problem briefly, let the number of periods which elapse between the receipt of orders n and n + 1 for an item be described by a probability mass function fn(s). If fn(∞) $>$ 0, then order-occurrence risk is said to exist. That is, upon receiving order n for an item, there exists a positive probability that no future orders will occur. Assuming deterministic order quantities, the order-occurrence risk problem is formulated as a dynamic program. Optimal production-inventory disposal policies are characterized for the case of piecewise-linear production-disposal costs and concave increasing holding costs. The production cost is assumed to include a setup cost, and demand backlogging is not permitted. The production and disposal lead times are assumed to be zero.

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