Impulse control with discontinuous setup costs: discounted cost criterion

DOI10.1137/19M1299244MaRDI QIDQ5145605zbMATH OpenOpenAlexFDO

Authors Fen Xu, Dacheng Yao, Hanqin Zhang

Publication date 21 January 2021

Published in SIAM Journal on Control and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1911.05308

zbMATH Keywords

\((s,S)\) policyinventoryimpulse control\((s,S(x):x\leq s)\) policyquantity-dependent setup cost

Mathematics Subject Classification ID

Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70) Impulsive optimal control problems (49N25) Inventory, storage, reservoirs (90B05) Optimal stochastic control (93E20)

Abstract: This paper studies a continuous-review backlogged inventory model considered by Helmes et al. (2015) but with discontinuous quantity-dependent setup cost for each order. In particular, the setup cost is characterized by a two-step function and a higher cost would be charged once the order quantity exceeds a threshold $Q$. Unlike the optimality of $(s,S)$-type policy obtained by Helmes et al. (2015) for continuous setup cost with the discounted cost criterion, we find that, in our model, although some $(s,S)$-type policy is indeed optimal in some cases, the $(s,S)$-type policy can not always be optimal. In particular, we show that there exist cases in which an $(s,S)$ policy is optimal for some initial levels but it is strictly worse than a generalized $(s,S(x):xleqs)$ policy for the other initial levels. Under $(s,S(x):xleqs)$ policy, it orders nothing for $x>s$ and orders up to level $S(x)$ for $xleqs$, where $S(x)$ is a non-constant function of $x$. We further prove the optimality of such $(s,S(x):xleqs)$ policy in a large subset of admissible policies for those initial levels. Moreover, the optimality is obtained through establishing a more general lower bound theorem which will also be applicable in solving some other optimization problems by the common lower bound approach.

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Cited in

(2)

• Continuity of discounted values and the structure of optimal policies for <scp>periodic‐review</scp> inventory systems with setup costs
• A measure approach for continuous inventory models: discounted cost criterion

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