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A FLUID EOQ MODEL WITH A TWO-STATE RANDOM ENVIRONMENT

Published online by Cambridge University Press:  06 March 2006

Oded Berman ,
David Perry  and
Wolfgang Stadje
Oded Berman
Affiliation:
Rotman School of Management, University of Toronto, Toronto, Canada, E-mail: Berman@rotman.utoronto.ca
David Perry
Affiliation:
Department of Statistics, University of Haifa, Haifa, Israel, E-mail: dperry@stat.haifa.ac.il
Wolfgang Stadje
Affiliation:
Department of Mathematics and Computer Science, University of Osnabrück, Osnabrück, Germany, E-mail: wolfgang@mathematik.uni-osnabrueck.de
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Abstract

We study a stochastic fluid EOQ-type model operating in a Markovian random environment of alternating good and bad periods determining the demand rate. We deal with the classical problem of “when to place an order” and “how big it should be,” leading to the trade-off between the setup cost and the holding cost. The key functionals are the steady-state mean of the content level, the expected cycle length (which is the time between two large orders), and the expected number of orders in a cycle. These performance measures are derived in closed form by using the level crossing approach in an intricate way. We also present numerical examples and carry out a sensitivity analysis.

Information

Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 20 , Issue 2 , April 2006 , pp. 329 - 349
Copyright
© 2006 Cambridge University Press

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References

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