Computers & Industrial Engineering 58 (2010) 809–813

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Computers & Industrial Engineering

journal homepage: www.elsevier.com/locate/caie

Technical Note

Some remarks on an optimal order quantity and reorder point when supply
and demand are uncertain q
Chih-Hsiung Wang *
Department of Business Administration, National Pingtung Institute of Commerce, 51 Min-Sheng E. Road, Pingtung 900, Taiwan

a r t i c l e i n f o a b s t r a c t

Article history: In the reports in the literature on inventory control, the effects of the random capacity on an order quan-
Received 18 September 2009 tity and reorder point inventory control model have been integrated with lead time demand following
Received in revised form 7 January 2010 general distribution. An iterative solution procedure has been proposed for obtaining the optimal solu-
Accepted 16 January 2010
tion. However, the resulting solution may not exist or it may not guarantee to give a minimum to the
Available online 21 January 2010
objective cost function, the expected cost per unit time. The aim of this study was to introduce a complete
solution of the order quantity/reorder point problem, optimality, properties and bounds on the optimal
Keywords:
order quantity and reorder point. The two most appealing distributions of lead time demand, normal and
Random yield
Inventory control model
uniform distributions, in conjunction with an exponentially distributed capacity, are used to illustrate our
Lead time demand findings in determining the optimal order quantity and reorder point.
Ó 2010 Elsevier Ltd. All rights reserved.

1. Introduction
The traditional Economic Order Quantity (EOQ) model assumes
that the demand rate is constant, and the resulting EOQ can be
obtained by balancing the order cost and inventory holding cost
(e.g., see Stevenson (2009)). When the lead time is a constant,
the reorder point is equal to the demand rate multiplied by the
order lead time, which is independent of the order lot size. How-
ever, when the demand during the lead time is uncertain, the rela-
tionships between the order quantity and the reorder point should
be further explored, and the reorder point plays a role in balancing
the costs between the inventory holding and shortage. Therefore,
an inventory control policy with continuous review, the (Q, R) mod-
el, was developed by Hadley and Whitin (1963), in which an order
is placed to order quantity Q once the inventory position is less
than the reorder point R. Hadley and Whitin (1963), proposed an
iterative solution procedure to simultaneously determine the opti-
mal order quantity and reorder point. When an exponential distri-
bution is used to simulate the lead time demand, an explicit
formula for the order quantity and reorder point was obtained by
Das (1976) (or see Wang, 2006).
Sometimes the order is not satisfied due to the random capa-
city of the suppliers. Hence the amount received is less than the
order quantity (see Erdem, Fadiloglu, & Ozekici, 2006 & Silver,
1976), which results in a production capacity that is random.
q
This manuscript was processed by Area Editor Mohamad Y. Jaber.
* Tel.: +886 8 723 8700x6168; fax: +886 8 723 7941.
E-mail address: chwang@npic.edu.tw
To deal with both the uncertainty of the upstream supply and
the downstream demand, Wang and Gerchak (1996) incorpo-
rated random capacity into the (Q, R) model; however, it is diffi-
cult to use the model by Wang and Gerchak (1996). Thus, an
‘‘intuitive” solution for the optimal order quantity/reorder point
was proposed by Wang and Gerchak (1996). However, a solution
may not be obtained using the solution procedure by Wang and
Gerchak (1996) or the obtained solution may not be guaranteed
to give a minimum for the expected cost per unit time. There-
fore, we explored the sufficient conditions needed to guarantee
that the solution proposed by Wang and Gerchak (1996) was un-
ique and optimal. In addition, we proposed properties and
bounds to facilitate obtaining the optimal order quantity and re-
order point. When the associated conditions for an optimal solu-
tion do not hold, a solution procedure using specific information
was further proposed to obtain the optimal solution. To the best
of our knowledge, such work has not been well studied pre-
viously. It should be noted that the EOQ problem with variable
capacity considered by Hariga and Haouari (1999) should be re-
garded as a special case of Wang and Gerchak (1996) with the
replenishment lead time of zero.
The rest of this paper is organized as follows: In Section 2, the
objective function, expected cost per unit time for the order quan-
tity/reorder point model with variable capacity is demonstrated. In
Section 3, conditions for the optimality, properties and bounds for
the optimal solution are investigated so that the minimal expected
cost per unit time can be obtained efficiently. In addition, a solu-
tion procedure that requires no condition is proposed. Two numer-
ical examples are used to illustrate our results. Finally, a summary
of the paper is presented.

0360-8352/$ - see front matter Ó 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.cie.2010.01.010
810 C.-H. Wang / Computers & Industrial Engineering 58 (2010) 809–813

Z Q Z Q
2. Mathematical model MðQ ; RÞ ¼ Q 2 GðQÞ þ 2Q ugðuÞdu  u2 gðuÞdu  2D½K þ pnðRÞ=h; ð4Þ
0 0

2.1. Notation NðQ ;RÞ ¼ huðQ Þ  DpFðRÞ: ð5Þ

Nevertheless, the simultaneous solution of M(Q, R) = 0 and
The following notation will be used throughout this paper:
N(Q, R) = 0 is not simple (Wang & Gerchak (1996)), and thus, Wang
and Gerchak (1996) do not show the existence of the simultaneous
c = production cost per unit;
solution. Furthermore, if the simultaneous solution exists, whether
K = setup cost per order;
it gives a minimum to Eq. (3) is unknown.
h = inventory holding cost per item per unit time;
p = cost per unit shortage;
Q = order quantity; 3. Optimal solution
R = reorder point;
X = random demand during a replenishment lead time with a In this section, some properties are proposed for determining
probability density function f(x), a cumulative distribution the optimal order quantity and reorder point, and their proofs
are given in the Appendix. When the random capacity follows an
F(x), a survival distribution FðxÞ ¼ 1  FðxÞ, a failure rate func-
exponential distribution, two commonly used lead time demands,
tion rðxÞ ¼ f ðxÞ=FðxÞ, a finite mean ld and a standard deviation namely normal and uniform distributions, are used to illustrate our
rd < 1; results.
n(R) = expected shortage during the replenishment lead time; The following lemma states the properties of u(Q) given in Eq.
R1
more precisely, nðRÞ ¼ R ðx  RÞf ðxÞdx; (1), the expected yield for an order quantity Q.
/(z) = probability density function of the standard normal dis-
tribution, i.e., /ðzÞ ¼ p1ffiffiffiffi expðz2 =2Þ; Lemma 1.
2p

UðzÞ = survival function of the standard normal distribution, i.e.,
R (a) uðQ Þis strictly increasing in Q > 0 and 0 < uðQ Þ < Q .
 ðzÞ ¼ 1 /ðyÞdy.
U z
(b) When lim Q GðQ Þ ¼ 0, we have lim uðQ Þ ¼ lc .
Q !1 Q !1
2.2. Expected cost per unit time

In Lemma 1(b), lim Q GðQ Þ ¼ 0 holds when the random capacity

The derivations of the expected cost per unit time obtained by
Wang and Gerchak (1996) for the (Q, R) model with a random
capacity are summarized as follows.
Let W be the actual yield when an order quantity Q is placed; we
then have W ¼ minfU; Q g, where U is the available capacity for
each production attempt. Furthermore, assume that U has a prob-
ability density function g(u), a cumulative distribution G(u), a sur-
vival distribution GðuÞ ¼ 1  GðuÞ, a mean lc < 1 and a standard
deviation rc < 1. The expected yield for an order quantity Q is gi-
ven by EðWÞ ¼ uðQ Þ, where
Z Q
uðQ Þ ¼ QGðQ Þ þ ugðuÞdu:
0 For the derivations of the bounds QE and QA, refer to Hariga and
Suppose the expected market demand per unit time to be D > 0.
Then, the expected cycle time is given by u(Q)/D. The total cost per
cycle consists of the order cost, production cost, inventory holding
cost and the shortage cost. Thus, the total cost per cycle is
K þ cQ þ hQ ðQ =2 þ R  ld Þ=D þ pnðRÞ if Q 6 u; or;
K þ cu þ huðu=2 þ R  ld Þ=D þ pnðRÞ if Q > u:
Hence, the expected total cost per cycle is given by
K þ pnðRÞ þ cuðQÞ þ ðh=DÞQ ðQ =2 þ R  ld ÞGðQ Þ þ ðh=DÞ
Z Q
 uðu=2 þ R  ld ÞgðuÞdu:
0 R ¼ F 1 ðhuðQ  Þ=ðDpÞÞ:
According to the Renewal Reward Theorem (e.g., see Ross
(1970)), the expected cost per unit time (denoted by V(Q, R)) can
be obtained by using Eq. (2) to be divided by the expected cycle
time, u(Q)/D. More precisely,

1 In Property 1, when the often-analyzed case of the demand dur-
VðQ ; RÞ ¼ cD þ hQðQ =2 þ R  ld ÞGðQ Þ
uðQ Þ
Z Q  tion, the random demand during the lead time has an increasing
þh uðu=2 þ R  ld ÞgðuÞdu þ D½K þ pnðRÞ :
0
To find an optimal solution ðQ  ; R Þ that minimizes Eq. (3),
Wang and Gerchak (1996) solve @VðQ ; RÞ=@Q ¼ 0 and
@VðQ ; RÞ=@R ¼ 0 simultaneously for ðQ  ; R Þ or, equivalently, simul-
taneously solve M(Q, R) = 0 and N(Q, R) = 0 for ðQ  ; R Þ, where
Q !1
has a Weibull distribution function (see Wang, Yeh, and Wu
(2006)), which is one of the most generalized distributions.
A lower bound and two upper bounds of Q R , the optimal order
quantity for any reorder point R, are given in the following lemma.
Lemma 2. Assume Q R to be the solution of M(Q, R) = 0 for a given
R
pP 0. Then, Q R uniquely exists within the finite interval ½Q E ¼
ffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
2DK=h, Q H ¼ minfQ A , Q B g, where
Q A ¼ ðQ 2E þ l2c þ r2c Þ=ð2lc Þ þ Dpld =ðhlc Þ; ð6Þ
Q B ¼ Q 2E =uðQ E Þ þ 2Dpld =½huðQ E Þ: ð7Þ
ð1Þ
Haouari (1999) and Wang and Gerchak (1996). In Lemma 2, when
the lead time demand is zero, this is the case considered by Hariga
and Haouari (1999). In this case, setting ld = 0 in Eq. (6) gives the
same upper bound as provided by Hariga and Haouari (1999).
Based on Lemmas 1 and 2, the conditions, properties and
bounds for the optimal solution are given in the following
property.
Property 1. Assume that lim Q GðQ Þ ¼ 0, r 0 ðxÞ > 0 for x > 0 and
Q !1
g ¼ hlc =ðpDÞ < 1. The simultaneous solution of M(Q, R) = 0 and
N(Q, R) = 0 uniquely exists, namely ðQ  ; R Þ, where Q E < Q  6 Q H and
ð2Þ
ð8Þ

Note that R > F 1 ðgÞ. Then, V(Q, R) has a unique minimum
attained at ðQ  ; R Þ if the following condition holds:
rðF 1 ðgÞÞ > minf1=Q E ; GðQ E Þ=uðQ E Þg: ð9Þ
ing replenishment lead time follows a normal or uniform distribu-
ð3Þ failure function. That is, r0 ðxÞ > 0 for x > 0 holds (e.g., see Elsayed
(1996)). Also note that in this proposed (Q, R) model, the expected
inventory holding cost per unit time and the expected shortage
cost per unit time are hlc and pD, respectively. In addition, it is of-
ten true in practice that the inventory holding cost per unit time is
less than the shortage cost per unit time. That is, g ¼ hlc =ðpDÞ < 1.
 C.-H. Wang / Computers & Industrial Engineering 58 (2010) 809–813 811

Based on Property 1, we know that when lim Q GðQ Þ ¼

Q !1
0; r0 ðxÞ > 0 for x > 0, g < 1 and Eq. (9) hold, the solution procedure
for obtaining the optimal solution is to find a R0 from ðF 1 ðgÞ; 1Þ
that satisfies huðQ R0 Þ=ðDpÞ ¼ FðR0 Þ, where Q E < Q R0 6 Q H and Q R0
can be uniquely obtained by solving MðQ ; R0 Þ ¼ 0 through Eq. (4),
e.g., by a bi-section search method. That is, dividing the finite inter-
val ðQ E ; Q H  into two by its midpoint Q m ¼ ðQ E þ Q H Þ=2, if
MðQ m ; R0 Þ ¼ 0, then set Q R0 ¼ Q m ; otherwise, selecting a subinter-
val either ðQ E ; Q m Þ if MðQ m ; R0 Þ > 0, or ðQ m ; Q H  if MðQ m ; R0 Þ < 0,
for further searching of Q R0 . Repeatedly perform the above-men-
tioned procedure until a point Q 0 is found that satisfies
MðQ 0 ; R0 Þ ¼ 0. Then, we have Q 0 ðor Q m Þ ¼ Q R0 ¼ Q  and R ¼ R0 .
Two commonly used lead time demands, normal and uniform
distributions, in conjunction with the exponentially distributed
capacity, gðuÞ ¼ ð1=bÞ expðu=bÞ, are used to elucidate Property 1.
Example 1. As in Wang and Gerchak (1996), let K ¼ 50ð$Þ,
h ¼ 2ð$=unit=yearÞ, D ¼ 200ðunits=yearÞ, p ¼ 25ð$=unitÞ, c ¼ 0,
b ¼ 100, and the lead time demand is a normal distribution with Fig. 1. The changes in the expected cost rate given in Eq. (12) for different order
quantities
ld = 100 units and rd = 25 units.
Solution: Wang & Gerchak (1996) solve M(Q, R) = 0 and
169 and Vð122; 171Þ ¼ 385:4617. When QE = 100 is used, the asso-
N(Q, R) = 0 simultaneously obtaining Q  ¼ 130 and R ¼ 147 with
ciated optimal reorder point is R100 ¼ 171, and the resulting cost
V(130, 147) = 305.8. Here, Property 1 is applied to ensure that
rate is 388.0209. It is easy to see that the PPCR is given by
(130, 147) is the optimal solution. When the lead time demand fol-
lows a normal distribution, we have rðxÞ ¼ /ðxrld Þ=½rd FðxÞ and 100%  ð388:0209  385:4617Þ=385:4617 ¼ 0:66%:
d
0
r ðxÞ > 0 (e.g., see Elsayed (1996)). Also note that F 1
ðgÞ ¼ ld þrd In Example 1 or Example 2, it is adequate to use the classical
 1 ðgÞ. These imply that Eq. (9) can be rewritten as
U EOQ and its associated reorder point as an approximate solution
since the resulting PPCR is insignificant.
 1 ðgÞÞ ¼ /ðU
rðld þ rd U  1 ðgÞÞ=ðrd gÞ
The following property shows that the optimal solution is lo-
> min f1=Q E ; 1=fb½expðQ E =bÞ  1gg: ð10Þ cated in a finite interval, which means that an exhaustive search
can be avoided, and this is especially useful when Property 1 can-
In this example, it is easy to verify that lim Q GðQ Þ ¼ 0 and not be applied to obtain the optimal solution.
Q !1
 1 ðg ¼ 0:04Þ ¼ 1:75
g ¼ 0:04 < 1. In addition, U and /(1.75) =
0.037318. These show that Eq. (10) holds since Property 2. If lim Q GðQ Þ ¼ 0 holds, Dp=h < lc and g < 1, then set
Q !1
Q a ¼ u1 ðDp=hÞ, otherwise set Q a ¼ 1. Let Q b ¼ minfmaxfQ a ; Q E g;
/ð1:75Þ=ð25  0:04Þ ¼ 0:037318 > minf1=Q E Q H þ 1g. When Q b 6 Q H , if MðQ b ; 0Þ 6 0, then we can find a unique
¼ 0:01; 1=fb½expðQ E =bÞ  1g ¼ 0:00582g: solution Q 0 that satisfies MðQ 0 ; 0Þ ¼ 0, where Q b 6 Q 0 6 Q H ; how-
ever, if MðQ b ; 0Þ > 0, then set Q 0 ¼ Q b . On the other hand, when
Therefore, from Property 1 we know that Q  ¼ 130 and
 Q b > Q H , we set Q 0 ¼ 1. The optimal solution (Q*, R*) for minimizing
R ¼ 147 give a minimum solution, as well as Q E ¼ 100 <
V(Q, R) can be determined by satisfying
Q  ¼ 130 < Q H ¼ minfQ A ¼ 2650; Q B ¼ 8068g ¼ 2650 and R

¼ 147 > ld þ rd U ðgÞ ¼ 143:75. In addition, when Q E ¼ 100 is
1
 
  
adopted, the optimal reorder point is R100 ¼ 149. The resulting total VðQ  ; R Þ ¼ min min V Q; F 1 ðhuðQ Þ=ðDpÞÞ ; VðQ 0 ; 0Þ :
Q E <Q <Q b
cost per unit time is 318.49. In this example, the percentage of pen-
alty cost rate (PPCR) is calculated as ð12Þ
100%  ð318:49  305:8Þ=305:8 ¼ 4:14%: In Property 2, Eq. (12) indicates that if Qb = QE or, equivalently,
Q a 6 Q E , then ðQ  ; R Þ ¼ ðQ 0 ; 0Þ, where Q E < Q 0 6 Q H .
Example 2 is further used to illustrate Property 2. According to
Example 2. In Example 2, the lead time demand is considered to Property 2, since lc ¼ 100 < Dp=h ¼ 2500, we set Q a ¼ 1. In addi-
be uniformly distributed over the interval ½m1 ¼ 25; m2 ¼ 175. tion, using Q H ¼ minfQ A ¼ 2650; Q B ¼ 8068g and Q E ¼ 100, this
gives Q b ¼ 2651. Since Q b ¼ 2651 > Q H ¼ 2650, we set Q 0 ¼ 1,
Solution: In this example, solving MðQ ; RÞ ¼ 0 and NðQ ; RÞ ¼ 0 and thus the optimal solution ðQ  ; R Þ can be found through Eq.
simultaneously gives Q  ¼ 122 and R ¼ 171. When the lead time (12). That is, by identifying a point that minimizes Eq. (12) over
demand follows a uniform distribution over the interval ½m1 ; m2 , the finite interval ½Q E þ 1 ¼ 101; Q b  1 ¼ 2650. When we have
we have f ðxÞ ¼ 1=ðm2  m1 Þ, FðxÞ ¼ ðm2  xÞ=ðm2  m1 Þ, rðxÞ ¼ 1= ðQ  ; R Þ ¼ ð122; 171Þ (also see Fig. 1, where the changes in the ex-
ðm2  xÞ and F 1 ðxÞ ¼ m2  ðm2  m1 Þx for m1 6 x 6 m2 . These im- pected cost rate given in Eq. (12) for different order quantities are
ply that Eq. (9) becomes presented), then this is the same solution as obtained in Example 2.
1=½ðm2  m1 Þg > minf1=Q E ; 1=fb½expðQ E =bÞ  1gg: ð11Þ
4. Conclusions
Eq. (11) holds since
1=½ð175  25Þ  0:04 ¼ 0:1667 > minf1=Q E A general formulation for the order quantity and reorder point
problem with variable capacity was developed by Wang & Gerchak
¼ 0:01; 1=fb½expðQ E =bÞ  1g ¼ 0:00582g
(1996). As such a model considers real world situations where both
indicating that (122, 171) is the optimal solution. Also note that the production capacity and the demand during the lead time are
Q E ¼ 100 < Q  ¼ 122 < Q H ¼ 2650, R ¼ 171 > m2  ðm2  m1 Þg ¼ generally distributed, studying its solution structure becomes
812 C.-H. Wang / Computers & Industrial Engineering 58 (2010) 809–813

important. In the report by Wang & Gerchak (1996), two non-linear Lemma 1(a). This implies that Q B P Q E , and hence uðQ B Þ P
equations of the first order condition were simultaneously solved uðQ E Þ from Lemma 1(a).
for the optimal order quantity and reorder point; however, such
Using Eq. (1) in Eq. (4) gives
a simultaneous solution may not exist or it is not guaranteed to
achieve a minimum solution. In this paper, sufficient conditions Z Q Z Q
have been given for the case in which a simultaneous solution ex- MðQ ;RÞ ¼ Q uðQ Þ þ Q ugðuÞdu  u2 gðuÞdu  2D½K þ pnðRÞ=h:
ists and is a unique minimum solution. When the concerned 0 0

conditions did not hold, a solution procedure using specific infor- RQ RQ

Since 0 u2 gðuÞdu 6 Q 0 ugðuÞdu, nðRÞ P ld for any R P 0 and
mation was proposed to obtain the optimal solution. Two com-
uðQ B Þ P uðQ E Þ, we have
monly used lead time demand distributions, namely normal and
uniform distributions, in conjunction with exponentially distrib- MðQ B ; RÞ P Q B uðQ E Þ  2D½K þ pld =h: ð16Þ
uted capacity were used to form two numerical examples to illus-
Eq. (16) indicates that MðQ B ; RÞ P 0. Hence, Q R
6 Q B . Therefore,
trate our findings in determining the optimal solution. The two
we have Q E 6 Q R 6 Q H ¼ minfQ A ; Q B g for any R P 0. h
numerical examples showed that when the reorder point was ob-
tained given that the order quantity was set to be the classic EOQ,
Proof of Property 1. First note that ðQ  ; R Þ is obtained equiva-
the resulting differences in percentage of penalty cost rates was
lently by setting the partial derivatives of V(Q, R) with respect to
not significant when compared with the optimal solution. In this
Q and R equal to zero. To verify that a solution ðQ  ; R Þ to V(Q, R)
paper, when the demand rate was constant and the lead time de-
gives a local minimum, it is sufficient to show that
mand was zero, it became an EOQ problem with random supplier
@ 2 VðQ ; RÞ=@R2 > 0, and the determinant d of the matrix of the sec-
capacity that was considered by Hariga & Haouari (1999). For
ond partial derivatives of V(Q, R) at ðQ  ; R Þ is positive. It is easy to
future research, it is important to consider the effects of imperfect
see that the first partial derivative of V(Q, R) on Q is given by
input materials and/or imperfect process quality on the order
quantity, reorder point and production lot size under the defective @VðQ ; RÞ=@Q ¼ ðh=2ÞGðQ ÞMðQ ; RÞ=½uðQ Þ2 ; ð17Þ
items produced from the imperfect process. In addition, we note
where u(Q) and M(Q, R) are given in Eqs. (1) and (4), respectively.
that when the supplier has a random capacity, the decision to
From Lemma 2, we know that Q  is unique and Q E 6 Q  6 Q H .
either choose a reliable supplier with a more expensive unit pur-
Furthermore, form Eq. (17), it is easy to verify that
chase cost or to agree to receive partial shipments until the whole
order is satisfied by paying some extra transportation cost, can be
studied as an issue that integrates purchasing, transportation and @ 2 VðQ ; RÞ=@Q 2 ¼ ðh=2ÞgðQ ÞMðQ; RÞ=½uðQÞ2
inventory into supply chain management. þ hGðQÞ=uðQÞ  h½GðQ Þ2 MðQ ; RÞ=½uðQ Þ3 : ð18Þ
Taking the first partial derivative of V(Q, R) with respect to R
Appendix A results in
@VðQ ; RÞ=@R ¼ NðQ; RÞ=uðQÞ; ð19Þ
Proof of Lemma 1. Lemma 1(a) follows the following facts:
where u(Q) and N(Q, R) are given in Eqs. (1) and (5), respectively.
duðQ Þ=dQ ¼ GðQ Þ > 0, lim uðQ Þ ¼ 0, d½Q  uðQ Þ=dQ ¼ 1 GðQ Þ
Q!0 Equating Eq. (19) to zero for R gives
> 0 and lim ½Q  uðQ Þ ¼ 0. Furthermore, it is easy to see that
Q !0 FðR Þ ¼ huðQ Þ=ðDpÞ < g; Q > 0; ð20Þ
lim uðQ Þ ¼ lc when lim Q GðQ Þ ¼ 0. This proves Lemma 1(b). h 
Q !1 Q !1 where Lemma 1 is used. Since g < 1, we have a unique R and
R > F 1 ðgÞ.
Proof of Lemma 2. From Eq. (4), we have Furthermore, from Eqs. (5) and (19), we have
Z Q
MðQ ; RÞ ¼ Q 2  ðu  Q Þ2 gðuÞdu  2D½K þ pnðRÞ=h; ð13Þ @ 2 VðQ ; RÞ=@R2 ¼ Dpf ðRÞ=uðQ Þ > 0: ð21Þ
0
Moreover, it is easy to see that
P Q 2  EðU  Q Þ2  2D½K þ pnðRÞ=h: ð14Þ
@ VðQ ; RÞ=@R@Q ¼ @ 2 VðQ ; RÞ=@Q @R ¼ DpFðRÞGðRÞ=½uðQÞ2 :
2
ð22Þ
From Eq. (13), we know that
Z The determinant d of the matrix of the second partial deriva-
QE
2 tives of V(Q, R) at ðQ  ; R Þ is given by
MðQ E ; RÞ ¼  ðu  Q E Þ gðuÞdu  2DpnðRÞ=h < 0: n
0
2 o
d ¼ @ 2 VðQ ; RÞ=@Q 2  @ 2 VðQ ; RÞ=@R2  @ 2 VðQ ; RÞ=@Q @R jðQ  ;R Þ
This shows that Q E is a lower bound of Q R
for any R P 0. n o
It should be noted that n(R) is decreasing in R since ¼ ½uðQ  Þ2 DpGðQ  Þ hf ðR Þ  Dp½FðR Þ2 GðQ  Þ=½uðQ  Þ2 :
dnðRÞ=dR ¼ FðRÞ < 0. Using nð0Þ ¼ ld > 0 and EðU 2 Þ ¼ r2c þ l2c
in Eq. (14) gives
ð23Þ
 
From Eq. (20), substituting FðR Þ ¼ huðQ Þ=ðDpÞ in Eq. (23) gives
MðQ ; RÞ P l2c  r2c þ 2Q lc  Q 2E þ 2Dpld =h: ð15Þ n o
d ¼ ½uðQ  Þ3 DphGðQ  ÞFðR Þ rðR Þ  GðQ  Þ=uðQ  Þ : ð24Þ
From Eq. (15), it is easy to verify that MðQ A ; RÞ P 0 for any
R P 0. From Eq. (4), since @MðQ ; RÞ=@Q ¼ 2uðQ Þ > 0 for Q > 0 Recall that uðQ Þ > 0 for Q > 0 from Lemma 1(a). Then, it is easy
from Lemma 1(a), we know that M(Q, R) is increasing in Q. Recall to see that GðQ Þ=uðQ Þ is decreasing in Q > 0 since
that MðQ E ; RÞ < 0 for any R P 0. These observations imply that
d½GðQ Þ=uðQ Þ=dQ ¼ fgðQ ÞuðQ Þ þ ½GðQ Þ2 g=½uðQ Þ2 < 0:
M(Q, R) = 0 has a unique solution Q R for any R P 0, where
Q E < Q R 6 Q A . This implies that GðQ  Þ=uðQ  Þ < GðQ E Þ=uðQ E Þ since Q  > Q E , as
Next, we show that Q B is also an upper bound of Q R for any shown in Lemma 2. In addition, from Eq. (1), it is easy to see that
R P 0. First note that Q B P Q 2E =uðQ E Þ and Q E P uðQ E Þ from uðQ Þ > Q GðQ Þ for Q > 0, which implies that GðQ  Þ=uðQ  Þ <
 C.-H. Wang / Computers & Industrial Engineering 58 (2010) 809–813
1=Q  < 1=Q E . Therefore, GðQ  Þ=uðQ  Þ < minf1=Q E ; GðQ E Þ=uðQ E Þg.
Since r(x) is increasing in x > 0 and R > F 1 ðgÞ, as shown above,
if rðF 1 ðgÞÞ > minf1=Q E ; GðQ E Þ=uðQ E Þg then d > 0 from Eq. (24). h
Proof of Property 2. First note that when lim Q GðQ Þ ¼ 0, if g < 1,
Q !1
then we have
Dp=h < lc ¼ lim uðQÞ;
Q !1
which implies that there exists a unique Q a < 1 that satisfies
uðQ a Þ ¼ Dp=h since uðQ Þ is increasing in Q > 0 from Lemma 1(a).
However, if g P 1, then there is no such Q a that satisfies
uðQ a Þ ¼ Dp=h, and we set Q a ¼ 1. In this case, we have to search
the interval ½Q E ; Q H  for Q  in Eq. (12).
Given Q > 0, the corresponding RQ that minimizes V(Q, R) can be
uniquely found by solving @VðQ ; RÞ=@R ¼ 0, where
@VðQ ; RÞ=@R ¼ h  DpFðRÞ=uðQ Þ: ð25Þ
Consider the case that Q a < 1, from Eq. (25), we know that
RQ a ¼ 0. Since uðQ Þ is increasing in Q > 0, we have
@VðQ ; RÞ=@R > 0 for Q > Q a . This implies that RQ ¼ 0 for Q P Q a .
On the other hand, for 0 < Q < Q a , it is easy to see that
0 < RQ ¼ F 1 ðhuðQ Þ=ðDpÞÞ < 1 from Eq. (25).
When the interval ðQ E ; Q H  for searching Q  is considered, Q a is
properly replaced by Q b ¼ minfmaxfQ a ; Q E g; Q H þ 1g, and we
have the following observations.
(I) For a given Q 2 ½Q b ; Q H , we have RQ ¼ 0. When RQ ¼ 0, from
Eqs. (4), (17) and @MðQ ; RÞ=@Q > 0, we know that if
MðQ b ; 0Þ > 0, then @VðQ ; RÞ=@Q > 0 for Q P Q b . This implies
813
that the optimal order quantity for R = 0 is given by Q 0 ¼ Q b .
On the other hand, if MðQ b ; 0Þ 6 0, then Q 0 can be found in
½Q b ; Q H  by solving MðQ ; 0Þ ¼ 0 through Eq. (4).
(II) For a given Q 2 ðQ E ; Q b Þ, it is easy to see that
0 < RQ ¼ F 1 ðhuðQ Þ=ðDpÞÞ < 1, from Eq. (25).
Finally, from the proofs of Property 1, we know that V(Q, R) is a
convex function of R P 0. Together with (I) and (II), we have Eq.
(12). h
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