Application of Dynamic Programming to the Control of Stock and to the Calculation of a Maximum Stock Capacity

Abstract

At the beginning the problem, as expressed by the heads of the Company which posed it, was in essence to find out whether, within the framework of a limited and well-defined expansion to level off in 1961, the existing capacity for stocks at a port used for shipping overseas would or would not be sufficient (it was thought it would not be).

If more warehouses were shown to be needed, the amount of this extra capacity was to be worked out.

It was very quickly discovered by an examination of the situation that the real problem would be rather to advise rules of stock management so as to take the best advantage of the existing stock capacity, in this way reducing the investment in buildings and maintenance to a minimum.

Study of the model confirmed that the new management rules would make it unnecessary to increase the existing stock capacity.

The model has the following characteristics: non-stationary process (e.g. an ever-changing situation), and an absence of any hypothesis on even the type of decision as to the method of renewing stock.

Dynamic Programming used for this set of circumstances has made it possible to arrive at optimum management rules, demonstrating, incidentally, the power of this method in the study of non-stationary processes.