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: | Karaesmen Fikri, Jema Zied |
Keywords: | inventory: order policies, queues: applications, queues: theory |
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.