RANDOM OPPORTUNITIES FOR REDUCED COST REPLENISHMENTS

Abstract

In this paper we consider the situation where the typical assumptions underlying the EOQ model are appropriate for an item, in particular a reasonably level demand rate exists. However, opportunities for special replenishments at a reduced unit cost occur at random. The following type of 3-parameter policy is considered. When a non-special (regular) replenishment is made, an order-up-to-level, S₁;, is used. When a special opportunity arises we only take advantage of it if the current inventory is low enough (L₂ or lower) and we order enough to raise the inventory level to S₁. This situation was modelled earlier in the literature, but the solution procedure suggested involved a 3-dimensional search on the three control parameters, S₁,, L₂, and S₂. We develop an approximate solution method which is much easier to use and which performs excellently on a wide range of examples. The performance of an even more simple method, based on always taking advantage of a special opportunity to replenish at reduced unit cost (i.e., setting L% = S₂), is shown to be highly dependent upon the values of the five uncontrollable parameters of the problem.