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Inventory management: (s,q) inventory policy with normal-distributed period demand

A (s,q) inventory policy for a product with normal-distributed demand per period and a fixed lead time is computed. In the standard version, continuous review is assumed. In this case, an iterative algorithm for finding the optimal values of s and q is applied. Alternatively, reviewing the inventory position at the end of each period (e.g. a day) while maintaining a fixed-quantity q [opposite to the (s,S) policy] is assumed. In this case the expectation and variance of the undershoot variable is computed and integrated into the computation of s.

Symbols:

E{D} expected demand per period
E{L} lead time
E{Y} expected demand during lead time
V{Y} variance of the demand during lead time
E{Y*} expected value of the sum of the demand during lead time and the undershoot
V{Y*} variance of the sum of the demand during lead time and the undershoot
E{U} expected undershoot
V{U} variance of the undershoot
P{.} probability
s reorder point
q order size

Assumptions:

  • normal-distributed demand
  • -service level
  • backorders, no lost sales

After computation of the optimal values of s and q these values are transfered to the simulation module.

Literature:

- Tempelmeier (2006)


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