An efficient procedure for non-stationary inventory control

We present an efficient solution method – Direct Derivative Estimation (DDE) – for computing optimal order-up-to levels for a discrete time non-stationary inventory control model. We generalize a number of non-stationary inventory control models (which underlie larger models of supply chains) that include forecast updates, seasonality, information sharing, and exchange-rate fluctuations. This procedure is different from the existing ones in that it computes, in a recursive manner, the derivative of the cost function and not the cost function itself. It can also handle a much wider variety of fluctuations in the problem parameters. In our computational testing it was found to be considerably faster than Dynamic Programming and Infinitesimal Perturbation Analysis.