Optimality of Supermarket Inventory Policies Under Stochastic Demand in Uganda:A Case Study of Milk Powder Product

Abstract

Effective inventory management requires cost-effective methods in determining the optimal ordering decisions of cycle inventories in a stochastic demand environment. In this paper, an inventory model with stochastic demand is developed to analyze the ordering decisions of milk powder in supermarkets given a periodic review inventory system under stochastic demand. Adopting a Markov decision process approach, the states of a Markov chain represent possible states of demand for milk powder product. The decision of when to order is made using dynamic programming over a finite period planning horizon. The approach demonstrates the existence of an optimal state-dependent ordering policy as well as the corresponding total inventory costs.