An Order-Up-to Inventory Model with Sustainability Consideration

Abstract

Along with growing interest in environmental concerns these days, significant academic efforts have been exerted to incorporate sustainability issues into the existing inventory models except for fixed-review interval (i.e., order-up-to models). In this study, we develop an order-up-to model considering environment-related costs and investigate the value of this new policy over the naive one. Results of an extensive simulation study reveal that sustainability consideration reduces the total costs and that its value is higher when the mean demand is higher, when demand is more variable, when the costs of transshipment or inventory holding are lower, or when an ordering setup cost or an additional indirect cost of having inventory are higher. These findings fill the research gap in existing literature and contribute to managerial implications for periodic inventory control in practice.