The Fixed-Charge Perishable Inventory Problem

This paper deals with the problem of determing both optimal and approximate ordering policies for a fixed-life perishable commodity when there is a fixed charge or set-up cost for placing an order. The structure of the optimal policy can be inferred from the analysis of a one-period model under the assumption that the outdating is paid for when the order arrives rather than when the outdating actually occurs. An approximate model is constructed for which (s, S) policies are optimal by approximating the one expected single-period cost and the transfer function. Two different bounds on the expected out-dating per period are used to obtain two different (s, S) approximations. Computations are performed for a discrete version of the problem with three different demand distributions and 24 configurations of the cost structure to compare the effectiveness of both approximations with the optimal policy.