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Advances in Operations Research
Volume 2011, Article ID 301205, 23 pages
http://dx.doi.org/10.1155/2011/301205
Research Article

On the Accuracy of Fluid Approximations to a Class of Inventory-Level-Dependent EOQ and EPQ Models

Department of Mathematical Sciences, University of Liverpool, Liverpool, L69 7ZL, UK

Received 29 September 2010; Accepted 18 January 2011

Academic Editor: Viliam Makis

Copyright © 2011 Alexey Piunovskiy and Yi Zhang. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Deterministic Economic Order Quantity (EOQ) models have been studied intensively in the literature, where the demand process is described by an ordinary differential equation, and the objective is to obtain an EOQ, which minimizes the total cost per unit time. The total cost per unit time consists of a “discrete” part, the setup cost, which is incurred at the time of ordering, and a “continuous” part, the holding cost, which is continuously accumulated over time. Quite formally, such deterministic EOQ models can be viewed as fluid approximations to the corresponding stochastic EOQ models, where the demand process is taken as a stochastic jump process. Suppose now an EOQ is obtained from a deterministic model. The question is how well does this quantity work in the corresponding stochastic model. In the present paper we justify a translation of EOQs obtained from deterministic models, under which the resulting order quantities are asymptotically optimal for the stochastic models, by showing that the difference between the performance measures and the optimal values converges to zero with respect to a scaling parameter. Moreover, we provide an estimate for the rate of convergence. The same issue regarding specific Economic Production Quantity (EPQ) models is studied, too.