Incorporating stockout countermeasure costs into inventory ordering decisions

Abstract

This paper provides several solution procedures for the class of lot size and order point decisions when countermeasures are necessary to avoid stockouts or mitigate their effects. Several countermeasure cost functions are incorporated when lot size and order point decisions are considered both independent/non optimal and dependent/optimal. Manual solution procedures are provided that utilize graphs specifically developed for these problems which are further explained through examples. Computer simulation procedures are developed and documented that are used to compute optimal results. Comparisons of cost results under conditions of independent/non-optimal and dependent/optimal lot sizes and order points are presented.