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A Simple Procedure for Determining Order Quantities under a Fill Rate Constraint and Normally Distributed Lead-Time Demand

Axsäter, Sven LU (2006) In European Journal of Operational Research 174(1). p.480-491
Abstract
One of the most common practical inventory control problems is considered. A single-echelon inventory system is controlled by a continuous review (R,Q) policy. The lead-time demand is normally distributed. We wish to minimize holding and ordering costs under a fill rate constraint. Although, it is not especially complicated to derive the optimal solution, it is much more common in practice to use a simple approximate two-step procedure where the order quantity is determined from a deterministic model in the first step. We provide an alternative, equally simple technique, which is based on the observation that the considered problem for each considered fill rate has a single parameter only. The optimal solution for a grid of parameter... (More)
One of the most common practical inventory control problems is considered. A single-echelon inventory system is controlled by a continuous review (R,Q) policy. The lead-time demand is normally distributed. We wish to minimize holding and ordering costs under a fill rate constraint. Although, it is not especially complicated to derive the optimal solution, it is much more common in practice to use a simple approximate two-step procedure where the order quantity is determined from a deterministic model in the first step. We provide an alternative, equally simple technique, which is based on the observation that the considered problem for each considered fill rate has a single parameter only. The optimal solution for a grid of parameter values is stored in a file. When solving the problem for an item we use interpolation, or for parameter values outside the grid special approximations. The approximation errors turn out to be negligible. As an alternative to the interpolation we also provide polynomial approximations. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Studies, Stochastic models, Approximations, Parameter optimization, Inventory control, Operations research
in
European Journal of Operational Research
volume
174
issue
1
pages
480 - 491
publisher
Elsevier
external identifiers
  • wos:000239252600033
  • scopus:33845276299
ISSN
0377-2217
DOI
10.1016/j.ejor.2005.01.037
language
English
LU publication?
yes
id
217d6f51-9fcf-40eb-ba1b-8e12968a9e6b (old id 632934)
date added to LUP
2008-02-04 12:23:31
date last changed
2018-07-08 04:03:32
@article{217d6f51-9fcf-40eb-ba1b-8e12968a9e6b,
  abstract     = {One of the most common practical inventory control problems is considered. A single-echelon inventory system is controlled by a continuous review (R,Q) policy. The lead-time demand is normally distributed. We wish to minimize holding and ordering costs under a fill rate constraint. Although, it is not especially complicated to derive the optimal solution, it is much more common in practice to use a simple approximate two-step procedure where the order quantity is determined from a deterministic model in the first step. We provide an alternative, equally simple technique, which is based on the observation that the considered problem for each considered fill rate has a single parameter only. The optimal solution for a grid of parameter values is stored in a file. When solving the problem for an item we use interpolation, or for parameter values outside the grid special approximations. The approximation errors turn out to be negligible. As an alternative to the interpolation we also provide polynomial approximations.},
  author       = {Axsäter, Sven},
  issn         = {0377-2217},
  keyword      = {Studies,Stochastic models,Approximations,Parameter optimization,Inventory control,Operations research},
  language     = {eng},
  number       = {1},
  pages        = {480--491},
  publisher    = {Elsevier},
  series       = {European Journal of Operational Research},
  title        = {A Simple Procedure for Determining Order Quantities under a Fill Rate Constraint and Normally Distributed Lead-Time Demand},
  url          = {http://dx.doi.org/10.1016/j.ejor.2005.01.037},
  volume       = {174},
  year         = {2006},
}