Discounted Cost Models with Lost Sales

  • Dirk BeyerEmail author
  • Feng Cheng
  • Suresh P. Sethi
  • Michael Taksar
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 108)


In the literature of stochastic inventory models, there are two different assumptions about the excess demand unfilled from existing inventories: the backlog assumption and the lost sales assumption. The former is more popular in the literature, partly because historically the inventory studies started with spare parts inventory management problems in military applications, where the backlog assumption is realistic. However, in many other business situations, it is quite often that demand that cannot be satisfied on time is lost. This is particularly true in a competitive business environment. For example, in many retail establishments such as a supermarket or a department store, a customer chooses a competitive brand and goes to another store if his/her preferred brand is out of stock.


Inventory Model Demand State Type Policy Dynamic Programming Equation Horizon Model 
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Copyright information

© Springer-Verlag US 2010

Authors and Affiliations

  • Dirk Beyer
    • 1
    Email author
  • Feng Cheng
    • 2
  • Suresh P. Sethi
    • 3
  • Michael Taksar
    • 4
  1. 1.M-FactorSan MateoUSA
  2. 2.Federal Aviation AdministrationOffice of Performance Analysis and StrategyWashingtonUSA
  3. 3.School of Management, M/S SM30The University of Texas at DallasRichardsonUSA
  4. 4.Department of MathematicsUniversity of MissouriColumbiaUSA

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