Renewal approximation to optimal order quantity for a class of continuous-review inventory systems

✍ Scribed by Izzet Sahin; Diptendu Sinha

• Publisher: John Wiley and Sons
• Year: 1987
• Tongue: English
• Weight: 625 KB
• Volume: 34
• Category: Article
• ISSN: 0894-069X
• DOI: 10.1002/1520-6750(198710)34:5<655::aid-nav3220340506>3.0.co;2-v

✦ Synopsis

Using a wide range of demand distributions and parameter settings, we examine the performance of an easily computable order-quantity approximation for a class of continuous-review inventory systems under a compound-renewal demand process. The approximation is derived by using some asymptotic results from renewal theory. The emphasis is on the conditions for the accuracy of the approximation. We find that when the item is to be stocked, the approximation is practically the same as the optimal order quantity, provided that the batch-size coefficient of variation is 51. Otherwise, the ratio of setup (ordering) cost to mean interamval time must be large enough, as prescribed by a simple condition derived in the article based on empirical considerations.