Optimal policies for a finite-horizon batching inventory model

This paper is concerned with finding an optimal inventory policy for the integrated replenishment-production batching model of Omar and Smith (2002). Here, a company produces a single finished product which requires a single raw material and the objective is to minimise the total inventory costs over a finite planning horizon. Earlier work in the literature considered models with linear demand rate function of the finished product. This work proposes a general methodology for finding an optimal inventory policy for general demand rate functions. The proposed methodology is adapted from the recent work of Benkherouf and Gilding (2009).