A minmax distribution free procedure for the (Q, R) inventory model

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Abstract

We are concerned with the continuous review (Q, R) model with backorder costs when only the mean and the variance of the distribution of the lead time demand are known. For each (Q, R) the minmax approach consist of finding the most unfavorable distribution fitting these two moments and then minimizing over (Q, R). The most unfavorable distribution turns out to have positive mass at only two points. This allows a closed form expression for the expected number of backorders per cycle. Given this closed form expression, the optimal (Q, R) pair is easy to find.

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Research supported in part by IBM manufacturing research grant.

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