Inventory Models with Fixed Costs, Forecast Updates, and Two Delivery Modes

Abstract:  This paper is concerned with a periodic review inventory system with fast and slow delivery modes, fixed ordering cost, and regular demand forecast updates. At the beginning of each period, on-hand inventory and demand information are updated. At the same time, decisions on how much to order using fast and slow delivery modes are made. Fast and slow orders are delivered at the end of the current period and at the end of the next period, respectively. A forecast-update-dependent (s,S)-type policy is shown to be optimal. Also shown are some monotonicity properties of the policy parameters with respect to the costs and information updates.