Inventory control using a service constraint on the expected customer order waiting time (Q1062892)

The inventory system considered is a stationary (s,q)-system. The inventory position is reviewed at the end of each day. If the inventory position is equal or less than the reorder point s a replenishment order of fixed quantity q is placed. If a replenishment is placed at the end of day t, it arrives after a discrete random lead time L where the probability distribution of L is known. It is assumed that the daily demand quantities (customer orders) are independently and identically distributed random variables. The customer orders which cannot be delivered completely because of a stockout situation are backordered until the end of the current replenishment lead time, i.e. the morning of day \(t+L+1\). A waiting time of a customer order occurs, if the coverage of the quantity s is less than the replenishment lead time L. In the paper the customer order waiting time distribution W is determined as a function of the reorder point s by use of arguments from renewal theory. The following two problems are considered: (i) calculate the reorder point \(s_ 0\) so as to Min[s\(|\) \(E\{W(s)\leq w^*\}]\) where E denotes the expectation operator and \(w^*\) denotes desired service level, as expressed in the terms of the expected customer order waiting time. (ii) calculate \(s_ 0\) so as to Min[s\(|\) \(P\{\) W(s)\(\leq W_{\max}\}\geq P_{\min}]\) where \(W_{\max}\) denotes the specified customer order waiting time, \(P_{\min}\) denotes the management specified percentage of customer orders which shall be filled within maximum time \(W_{\max}.\) The problems are solved for a numerical example based on empirical data.