Article ID: | iaor2013291 |
Volume: | 35 |
Issue: | 1 |
Start Page Number: | 153 |
End Page Number: | 162 |
Publication Date: | Jan 2013 |
Journal: | OR Spectrum |
Authors: | Axster Sven |
Keywords: | simulation, statistics: distributions |
Inventory control systems used in practice are quite often modeling the lead‐time demand by a normal distribution. This may result in considerable errors when the real demand is low and discrete. For such demand, it is usually better to use a discrete demand distribution. However, this will increase the computational effort. A natural question is under what circumstances a normal approximation is feasible. This paper analyzes this question in a numerical study. Our study indicates that a normal approximation works reasonably well when the average lead‐time demand is something like 10 or higher and the coefficient of variation is bounded by something like 2. The normal approximation works better for a high backorder cost or, equivalently, a high service level.