Optimal stochastic inventory control with deterioration and partial backlogging/service-level constraints (Q2627375)

Summary: A new inventory system with finite planning horizon is studied for deteriorating items. The system is under periodic review and there is a positive fixed order cost associated with any placed order. Customer demand is stochastic and a constant fraction of any positive leftover stock is deteriorated at the end of each period. This study first considers that any unsatisfied demand is partially backlogged and fulfilled immediately as a new order arrives. The optimal conditions under which a \((s, S)\) policy holds are successfully derived. Then the effect of partial backlogging is replaced by incorporating the service-level constraints so that the explicit order quantities are obtained by reformulating the problem as a mixed-integer programming model.