An inventory model with expedited stockouts

SUMMARY The optimal reorder point and reorder quantity are calculated to minimize the sum of holding, set-up, and stockout costs, where the stockout cost is simply the expense of expediting the manufacturing lead time. It is argued that this cost model is applicable in many real-world manufacturing situations, and it has the great advantage of using cost coefficients which can be roughly estimated. In addition, formulas are given for the 'implied' and 'critical' charge for expediting, the latter being defined as the point below which it doesn't pay to carry safety (buffer) stock.