On using higher-order moments for stochastic inventory systems

On using higher-order moments for stochastic inventory systems

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Article ID: iaor20071578
Country: Netherlands
Volume: 104
Issue: 2
Start Page Number: 454
End Page Number: 461
Publication Date: Jan 2006
Journal: International Journal of Production Economics
Authors: ,
Keywords: service
Abstract:

The lead time demand in a stochastic inventory system is often simplified as a normal distribution in practice, whereas the higher-order moments are seldom applied in inventory management due to the difficulty of accessing necessary statistics tables for practitioners. In this paper, we have introduced the Bowman–Shenton formulae for calculating safety factors in modelling a compound distribution. This approximation makes it easy to implement the higher-order moment approach. Our numerical examples show that the system performance measure, in terms of service level, has been significantly improved when we use a Pearson curve, especially at a high service level.

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