We consider a single-item, periodic-review inventory model with uncertain demands in which each period's production volume is limited by a capacity level. The demand distributions, capacity levels, and cost parameters vary according to a periodic pattern. We prove that modified base-stock policies are optimal for the finite-horizon planning model and for both the infinite-horizon discounted and undiscounted cost criterion. We further show that the optimal base-stock levels can be calculated via a simple but efficient value-iteration method. Finally, we have conducted a comprehensive numerical study to ascertain the efficiency of this solution method as well as various qualitative properties of the performance of capacitated production/inventory systems under periodically varying demand and cost patterns.

Yossi Aviv and Awi Federgruen
Journal Article
Publication Date
Probability in the Engineering and Informational Sciences

Full Citation

Aviv, Yossi and Awi Federgruen
. “Stochastic inventory models with limited production capacity and periodically varying parameters.”
Probability in the Engineering and Informational Sciences
, (January 01, 1997):