A solution for the intractable inventory model when both demand and lead time are stochastic

Jack C. Hayya, Terry Paul Harrison, Dean C. Chatfield

Research output: Contribution to journalArticle

21 Citations (Scopus)

Abstract

We consider the reorder point, order quantity inventory model where the demand, D, and the lead time, L, are independently and identically distributed (iid) random variables. This model is analytically intractable because of order crossover. However, we show how to resolve the intractability by empirical means, for example, by regression relationships produced by simulation and factorial experiments. Using a normal approximation, we show how to obtain regression equations for the optimal cost and the optimal policy parameters (here the order quantity and the safety stock factor) in terms of the problem parameters (ordering cost per order, holding cost per unit per unit time, shortage cost per unit, the standard deviation of demand, and the standard deviation of lead time).

Original languageEnglish (US)
Pages (from-to)595-605
Number of pages11
JournalInternational Journal of Production Economics
Volume122
Issue number2
DOIs
StatePublished - Dec 1 2009

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Costs
Random variables
Inventory model
Lead time
Experiments
Standard deviation
Order quantity
Factors
Crossover
Shortage
Optimal policy
Safety stock
Approximation
Experiment
Reorder point
Simulation

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

Cite this

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A solution for the intractable inventory model when both demand and lead time are stochastic. / Hayya, Jack C.; Harrison, Terry Paul; Chatfield, Dean C.

In: International Journal of Production Economics, Vol. 122, No. 2, 01.12.2009, p. 595-605.

Research output: Contribution to journalArticle

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