An approximate method for measuring the service levels of the warehouse-retailer system operating under (s,S) policy is presented. All the retailers are identical and the demand process at each retailer follows a stationary stuttering Poisson process. This type of demand process allows customer orders to be for a random number of units, which gives rise to the undershoot quantity at both thw warehouse and retailer levels. Exact analyses of the distribution of the undershoot quantity and the number of orders placed by a retailer during the warehouse reordering lead time are derived. By using this distribution together with the probability approximation and other heuristic approaches, the authors model the behavior of the warehouse level. Based on the results of the warehouse level and on an existing framework from previous work, the service level at the retailer level is estimated. Results of the approximate method are then compared with those of simulation.
