New analytical bounds on the average undershoot in an infinite horizon (s,S) inventory system

New analytical bounds on the average undershoot in an infinite horizon (s,S) inventory system

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Article ID: iaor2013737
Volume: 41
Issue: 1
Start Page Number: 67
End Page Number: 73
Publication Date: Jan 2013
Journal: Operations Research Letters
Authors: , ,
Keywords: demand, decision
Abstract:

We provide new bounds on the average undershoot in an infinite horizon ( s , S ) equ1 inventory system with i.i.d demands with known moments up to order three. The two moment bound improves on Lorden’s bound [G. Lorden, On Excess over the Boundary, Annals of Mathematical Statistics 41 (2) (1970) 520–527] for small values of S equ2 s equ3 and low values of the coefficient of variation. The three moment bound provides further improvement for negatively skewed demands. The bounds are sharp and shown to be useful when the asymptotically tight two moment approximation fails.

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