Reorder level determination with serially-correlated demand

This research analyses the effect of serially-correlated demand on the determination of appropriate reorder levels. While previous research has investigated this effect on the required levels of safety stock, the consequence of autocorrelation on the expected demand during lead time has been ignored. In this paper we examine the determination of accurate reorder levels for first-order autoregressive and moving average demand processes. A numeric analysis is then conducted to evaluate the effect of serial correlation on the service level provided, and indicates that existing approaches of managing serially-correlated demand can result in excessive inventories and shortages for high levels of autocorrelation.