An Inventory Policy for a Case of Lagged Delivery

Abstract

In this paper we study the question which inventory policy is optimal in the presence of long delivery lags under otherwise simple conditions. The data on which the solution depends are the average demand per day (say), the carrying cost per unit and day, the fixed and per unit costs of ordering, the penalty per day of shortage, and the delivery lag. It will be shown that under certain conditions, mentioned presently, the optimal inventory policy is of the following simple type: order a fixed amount whenever the level of stock plus outstanding orders reaches a certain level. Formulas for the determination of the order size and of the reordering point will be derived.