Technical note : worst-case performance of power-of-two policies for serial inventory systems with incremental quantity discounts
Naval Research Logistics
Inventory/production, Multi-stage with incremental quantity discounts, Power-of-two policies
This study presents power-of-two policies for a serial inventory system with constant demand rate and incremental quantity discounts at the most upstream stage. It is shown that an optimal solution is nested and follows a zero-inventory ordering policy. To prove the effectiveness of power-of-two policies, a lower bound on the optimal cost is obtained. A policy that has a cost within 6% of the lower bound is developed for a fixed base planning period. For a variable base planning period, a 98% effective policy is provided. An extension is included for a system with price dependent holding costs.
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Rieksts, B. Q., Ventura, J. A., Herer, Y. T., & Sun, D. (2007). Technical note: Worst-case performance of power-of-two policies for serial inventory systems with incremental quantity discounts. Naval Research Logistics, 54(5), 583-587. doi: 10.1002/nav.20220