The Structure of Periodic Review Policies in the Presence of Random Yield

Abstract

This work provides a comprehensive analysis of a general periodic review production/inventory model with random (variable) yield. Existence of an order point whose value does not depend on yield being random is proved in the single period case without specifying the yield model and using a very general cost structure. When yield is a random multiple of lot size, the nonorder-up-to optimal policy is characterized for a finite-horizon model. The finite-horizon value functions are shown to converge to the solution of an infinite-horizon functional equation, and the infinite-horizon order point is shown to be no smaller than when yield is certain.