The cost of using stationary inventory policies when demand is non-stationary

Tunc H., KILIC O. A., TARIM Ş. A., Eksioglu B.

OMEGA-INTERNATIONAL JOURNAL OF MANAGEMENT SCIENCE, vol.39, no.4, pp.410-415, 2011 (SCI-Expanded) identifier identifier


Non-stationary stochastic demands are very common in industrial settings with seasonal patterns, trends, business cycles, and limited-life items. In such cases, the optimal inventory control policies are also non-stationary. However, due to high computational complexity, non-stationary inventory policies are not usually preferred in real-life applications. In this paper, we investigate the cost of using a stationary policy as an approximation to the optimal non-stationary one. Our numerical study points to two important results: (i) Using stationary policies can be very expensive depending on the magnitude of demand variability. (ii) Stationary policies may be efficient approximations to optimal non-stationary policies when demand information contains high uncertainty, setup costs are high and penalty costs are low. (C) 2010 Elsevier Ltd. All rights reserved.