Date Added: Mar 2010
This paper considers a two-stage serial inventory system with a finite planning horizon. The downstream stage, referred to as stage 1, orders from stage 2, which orders from an external supplier with ample supply. Random demand occurs at stage 1. The demands between periods are independent, and the demand distribution may differ from period to period. There are constant lead times. A linear holding cost is incurred per period for each unit of on-hand inventory and a linear backorder cost is incurred per period for each unit of unfilled demand. In addition, there is a linear order cost. The objective is to obtain an optimal policy such that the total discounted cost is minimized.