On the validity of the arithmetic–geometric mean method to locate the optimal solution in a supply chain system

Abstract

Cardenas-Barron [Cardenas-Barron, L.E. (2010) ‘A Simple Method to Compute Economic order Quantities: Some Observations’, Applied Mathematical Modelling, 34, 1684–1688] indicates that there are several functions in which the arithmetic–geometric mean method (AGM) does not give the minimum. This article presents another situation to reveal that the AGM inequality to locate the optimal solution may be invalid for Teng, Chen, and Goyal [Teng, J.T., Chen, J., and Goyal S.K. (2009), ‘A Comprehensive Note on: An Inventory Model under Two Levels of Trade Credit and Limited Storage Space Derived without Derivatives’, Applied Mathematical Modelling, 33, 4388–4396], Teng and Goyal [Teng, J.T., and Goyal S.K. (2009), ‘Comment on ‘Optimal Inventory Replenishment Policy for the EPQ Model under Trade Credit Derived without Derivatives’, International Journal of Systems Science, 40, 1095–1098] and Hsieh, Chang, Weng, and Dye [Hsieh, T.P., Chang, H.J., Weng, M.W., and Dye, C.Y. (2008), ‘A Simple Approach to an Integrated Single-vendor Single-buyer Inventory System with Shortage’, Production Planning and Control, 19, 601–604]. So, the main purpose of this article is to adopt the calculus approach not only to overcome shortcomings of the arithmetic–geometric mean method of Teng et al. (2009), Teng and Goyal (2009) and Hsieh et al. (2008), but also to develop the complete solution procedures for them.

Keywords:

• inventory
• trade credits
• two warehouses
• arithmetic–geometric mean inequality