STOCHASTIC INVENTORY MODELS WITH LIMITED PRODUCTION CAPACITY AND PERIODICALLY VARYING PARAMETERS

We consider a single-item, periodic-review inventory model with uncert ain demands in which each period's production volume is limited by a c apacity level. The demand distributions, capacity levels, and cost par ameters vary according to a periodic pattern. We prove that modified b ase-stock policies are optimal for the finite-horizon planning model a nd for both the infinite-horizon discounted and undiscounted cost crit erion. We further show that the optimal base-stock levels can be calcu lated via a simple but efficient value-iteration method. Finally, we h ave conducted a comprehensive numerical study to ascertain the efficie ncy of this solution method as well as various qualitative properties of the performance of capacitated production/inventory systems under p eriodically varying demand and cost patterns.