A Robust Optimization Approach to Inventory Theory

We propose a general methodology based on robust optimization to address the problem of optimally controlling a supply chain subject to stochastic demand in discrete time. This problem has been studied in the past using dynamic programming, which suffers from dimensionality problems and assumes full knowledge of the demand distribution. The proposed approach takes into account the uncertainty of the demand in the supply chain without assuming a specific distribution, while remaining highly tractable and providing insight into the corresponding optimal policy. It also allows adjustment of the level of robustness of the solution to trade off performance and protection against uncertainty. An attractive feature…