Optimal strategy for a periodic review inventory system with discounted variable cost and finite ordering capacity

We study a periodic review inventory system with finite ordering capacity, and assume the variable ordering cost would be discounted when the ordering quantity is the full capacity. Applying the concept of strong CK-concavity, we show that the optimal pricing and ordering strategy could be partially characterized by an (S, S ', p) strategy in four regions depending on the starting inventory level per period. Numerical experiments verify the proposed strategy.

Automated summary

In this study, we analyze a periodic review inventory system with finite ordering capacity and assume that the variable ordering cost is discounted when the ordering quantity reaches the capacity. By applying the concept of strong CK-concavity, we demonstrate that the optimal pricing and ordering strategy can be partially characterized by an (S, S ', p) strategy in four different regions, depending on the starting inventory level per period. Numerical experiments validate the proposed strategy.