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All-or-Nothing Ordering Under a Capacity Constraint

Department of Industrial Engineering and Operations Research, Columbia University, 500 West 120th Street, New York, New York 10027
INSEAD, 77305 Fontainebleau Cedex, France
ggallego{at}ieor.columbia.edu
beril.toktay{at}insead.edu

We consider a special case of the single-item, periodic-review inventory control problem with fixed plus linear ordering costs and an upper bound on production capacity. We assume that the fixed cost is large relative to the variable cost and restrict our analysis to full-capacity orders. We show that the optimal policy is a threshold policy, with respect to the inventory position, for a class of cost-to-go functions that include the class of convex functions.

Subject classifications: production/inventory; capacitated; stochastic; threshold policy.
History: Received October 2001; accepted November 2003.