Minimizing holding and ordering costs subject to a bound on backorders is as easy as solving a single backorder cost model

Authors:
Tamer Boyaci;Guillermo Gallego
Affiliations:
Faculty of Management, McGill University, 1001 Sherbrooke St. West, Montreal, Quebec, Canada H3A 1G5,;Department of IE&OR, Columbia University, 500 West 120th Street, Rm 331, New York, NY, 10027, USA
Venue:
Operations Research Letters
Year:
2001

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Abstract

Minimizing average ordering and holding cost subject to a constraint on expected backorders has required to iteratively solve the backorder cost model with different backorder penalty rates until the constraint is satisfied. Here we present a direct approach, that is as simple as solving a single backorder cost model.