The limit of profitability for cost minimization in inventory control

Abstract

Classical models dealing with inventory systems usually assume, among other things, that the unit (or ‘piece’) cost remains constant over some given range and also that maximum profitability of the system is assured if cost minimization takes place.

However, for operations which in themselves are not predominantly machine controlled but are essentially dependent on human skill, these assumptions may not always be valid since the performance of the operator will be subject to a learning process. This has the effect of decreasing the unit production cost including additional effects of rising incentive payments. This paper considers the effect of combining ‘learning’ models with basic inventory models and shows how profitability is affected