Single period inventory models with two levels of storage

ISSN： 1366-5871

Source： Production Planning and Control, Vol.9, Iss.6, 1998-09, pp. : 553-560

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Abstract

It is common practice in most inventory systems to hold excess stocks in a rented warehouse (RW) whenever the storage capacity of the owned warehouse (OW) is insufficient. Therefore, the purpose of this paper is to study the effect of renting more storage space on the optimal ordering policy in a stochastic single-period setting. We show that the optimal ordering quantity obtained from the single-period, two-warehouse model is smaller than the ordering quantity of the unconstrained classical newsboy problem. We additionally present various properties of the optimal ordering policy. The model is also extended to the fixed cost case, where depending on the level of the initial inventory, a fixed ordering charge is incurred at the start of the period. In addition, we analyse both models with and without fixed ordering cost under the distribution-free approach in which the form of the demand distribution is not required to be specified. Numerical examples are also included to illustrate the developed models in this paper.