The influence of demand variability on the performance of a make-to-stock queue

The influence of demand variability on the performance of a make-to-stock queue

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Article ID: iaor20061633
Country: Netherlands
Volume: 164
Issue: 1
Start Page Number: 195
End Page Number: 205
Publication Date: Jul 2005
Journal: European Journal of Operational Research
Authors: ,
Keywords: inventory: order policies, queues: applications, queues: theory
Abstract:

Variability, in general, has a deteriorating effect on the performance of stochastic inventory systems. In particular, previous results indicate that demand variability causes a performance degradation in terms of inventory related costs when production capacity is unlimited. In order to investigate the effects of demand variability in capacitated production settings, we analyze a make-to-stock queue with general demand arrival times operated according to a base-stock policy. We show that when demand inter-arrival distributions are ordered in a stochastic sense, increased arrival time variability indeed leads to an augmentation of optimal base-stock levels and to a corresponding increase in optimal inventory related costs. We quantify these effects through several numerical examples.

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