An improved (Q, R) formulation when the stockout cost is incurred on a per-stockout basis

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

5 Scopus Citations
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Author(s)

  • Amy Hing Ling Lau
  • Hon-Shiang Lau

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)421-434
Journal / PublicationInternational Journal of Production Economics
Volume111
Issue number2
Publication statusPublished - Feb 2008

Abstract

When an order for an out-of-stock inventory item is received, sometimes a fixed cost independent of the order size is incurred to expedite the order (e.g., by running a special production batch or chartering a helicopter). This paper shows that the current standard "textbook formulation" for this situation contains a number of conceptual flaws. We then present an improved formulation and an associated solution procedure, followed by numerical illustrations. It is shown that the improved formulation leads to substantially improved solutions. © 2007 Elsevier B.V. All rights reserved.

Research Area(s)

  • (Q, R) model, Inventory, Stockout cost