Robustness of the normal approximation of lead-time demand in a distribution setting

Robustness of the normal approximation of lead-time demand in a distribution setting

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Article ID: iaor19971766
Country: United States
Volume: 44
Issue: 2
Start Page Number: 165
End Page Number: 186
Publication Date: Mar 1997
Journal: Naval Research Logistics
Authors: ,
Keywords: statistics: distributions
Abstract:

Previous studies criticize the general use of the normal approximation of lead-time demand on the grounds that it can lead to serious errors in safety stock. The authors reexamine this issue for the distribution of fast-moving finished goods. They first determine the optimal reorder points and quantities by using the classical normal-approximation method and a theoretically correct procedure. The authors then evaluate the misspecification error of the normal approximation solution with respect to safety stock, logistics-system costs, total costs (logistics costs, including acquisition costs), and fill rates. The results provide evidence that the normal approximation is robust with respect to both cost and service for seven major industry groups.

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