Cost-Effective Optimization on a Two Demand Classes Inventory System

This paper investigates impact of change of priority on a continuous review inventory system with a mixture of backorders and lost sales. The inter-arrival processes are assumed to be exponentially distributed. The objective is to minimize the anticipated total cost rate by simultaneously optimizing the maximum inventory level and backorders. An entropy-based uncertainty metric for evaluating the operating performance is demonstrated.The proposed modification offers the practical value of establishing how the long-run cost rate is reduced. Various system performance measures are derived.