OPTIMAL (S,S) POLICY FOR AN INVENTORY SYSTEM WHEN THE DEMAND CAN BE PARTIALLY SATISFIED

This paper presents a mathematical model developed for the synthesis o f optimal replenishment policies for items which experience lumpy dema nds. To avoid disrupting the inventory system, a cutoff point of w uni ts is introduced such that the system would only satisfy routinely cus tomer orders with transaction sizes less than or equal to w units. For customer orders with transaction sizes larger than w units, the syste m would only supply the cutoff amount (w units). The excess units woul d be refused. The control discipline is the (s,S) inventory policy wit h continuous review, and the nature of the demands is approximated by a discrete stuttering Poisson distribution. The optimal values of the control parameters, s, and S, are determined. The theoretical results obtained are illustrated with a numerical example.