A single-item continuous review inventory problem with space restriction

With today's high cost of land acquisition observed in most countries, management can no longer afford large storage facilities to house their products. For this reason, one of the main concerns of inventory managers is to ensure that enough storage space is available upon the delivery of a product. They, therefore, have to determine the least cost ordering policy so as to meet demand and taking into account the space limitation. In this paper, we investigate the problem of a single item continuous review inventory problem in the presence of a space restriction when the demand is stochastic. Through a sensitivity analysis study, it is found that ordering cost, storage capacity, average demand per unit time, and holding cost rate are the most influential problem parameters on the expected inventory costs. It is also shown numerically that a simple solution based on economic order quantity is performing very well with an average and maximum cost penalty of 0.19% and 2.03%, respectively.