Computational issues in a stochastic finite horizon one product recovery inventory model

Inderfurth [OR Spektrum 19 (1997) 111] and Simpson [Operations Research 26 (1978) 270] have shown how the optimal decision rules in a stochastic one product recovery system with equal leadtimes can be characterized. Using these results we provide in this paper a method for the exact computation of the parameters which determine the optimal periodic policy. Since exact computation is, especially in case of dynamic demands and returns, quite time consuming, we also provide two different approximations. One is based on an approximation of the value-function in the dynamic programming problem while the other approximation is based on a deterministic model. By means of numerical examples we compare our results and discuss the performance of the approximations. (C) 2002 Elsevier Science B.V. All rights reserved.