Optimal inventory policy involving back-order discounts and variable lead time demand

This paper allows the backorder rate as a control variable to widen applications of the Wu and Tsai’s 2001 model. Moreover, we also consider the backorder rate that proposed by combining the work of Ouyang and Chuang 2001 (also see Lee 2005) with the work of Pan and Hsiao 2001, 2005) (also see Pan et al. 2004) to present a new general form. Thus, the backorder rate is dependent on the amount of shortages and backorder price discounts. In addition, we also develop an algorithmic procedure to find the optimal inventory policy. Finally, a numerical example is also given to illustrate the results.

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