Abstract
Optimal inventory policy is first derived for a simple model in which the future (and constant) demand flow and other relevant quantities are known in advance. This is followed by the study of uncertainty models — a static and a dynamic one — in which the demand flow is a random variable with a known probability distribution. The best maximum stock and the best reordering point are determined as functions of the demand distribution, the cost of making an order, and the penalty of stock depletion.
This paper was prepared in the summer of 1950 at the Logistics Conference of The RAND Corporation, Santa Monica, California. It will be reprinted as Cowles Commission Paper, New Series, No. 44.
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© 1974 D. Reidel Publishing Company, Dordrecht, Holland
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Arrow, K.J., Harris, T. (1974). Optimal Inventory Policy (1951). In: Economic Information, Decision, and Prediction. Theory and Decision Library, vol 7-2. Springer, Dordrecht. https://doi.org/10.1007/978-94-010-9278-4_2
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DOI: https://doi.org/10.1007/978-94-010-9278-4_2
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