*********************************
There is now a CONTENT FREEZE for Mercury while we switch to a new platform. It began on Friday, March 10 at 6pm and will end on Wednesday, March 15 at noon. No new content can be created during this time, but all material in the system as of the beginning of the freeze will be migrated to the new platform, including users and groups. Functionally the new site is identical to the old one. webteam@gatech.edu
*********************************
Motivated by the practice of transportation contracts in the modern era, we study periodic-review inventory control models with ordering cost c(x)=cx +K 1[x>R], i.e. the ordering is cx if the ordering quantity is below its quota R, and K+cx if the ordering quantity is over its quota, where K is a setup cost for working out additional contract terms such as additional truck and processing fees, etc. This ordering cost function is neither convex nor concave, and the classical periodic-review inventory model with setup cost is a special case with R=0. We show that the optimal policy is a refined (s,S) policy. We apply this result to a production control problem under energy crisis where the supplier provides an incentive for the manufacturer to not exceed a certain quota.
