Multi‐Echelon Inventory Management under Short‐Term Take‐or‐Pay Contracts

We extend the Clark–Scarf serial multi‐echelon inventory model to include procuring production inputs under short‐term take‐or‐pay contracts at one or more stages. In each period, each such stage has the option to order/process at two different cost rates; the cheaper rate applies to units up to the contract quantity selected in the previous period. We prove that in each period and at each such stage, there are three base‐stock levels that...