Social and Behavioral Sciences Commons^™

Optimal Inventory Policies When Sales Are Discretionary, Herbert E. Scarf

Cowles Foundation Discussion Papers

Inventory models customarily assume that demand is fully satisfied if sufficient stock is available. We analyze the form of the optimal inventory policy if the inventory manager can choose to meet a fraction of the demand. Under classical conditions we show that the optimal policy is again of the ( S,s ) form. The analysis makes use of a novel property of K-concave functions.