In this chapter, we consider a setting similar to the economic order quantity (EOQ)
model (Section 3.2) but with stochastic demand. The mean demand per year is
. The inventory position
is monitored continuously, and orders may be placed at any time. There is a deterministic lead time
L (
). Unmet demands are
backordered.
If the demand has a continuous distribution,
then the inventory level
decreases smoothly but randomly over time, with rate
, as in Figure 5.1. (Think of liquid draining out of a tank at a fluctuating rate.) This is the interpretation used in most of this chapter. Or demands may occur at discrete points in time (as customers arrive), for example, if the demand follows a Poisson process,
as in Section 5.5.
Figure 5.1 Inventory level (solid line) and inventory position (dashed line) under
policy.
We'll assume the firm follows an
policy: When the inventory position reaches a certain ...
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Policies
. The inventory position
is monitored continuously, and orders may be placed at any time. There is a deterministic lead time
L (
). Unmet demands are
backordered.
, as in Figure 5.1. (Think of liquid draining out of a tank at a fluctuating rate.) This is the interpretation used in most of this chapter. Or demands may occur at discrete points in time (as customers arrive), for example, if the demand follows a Poisson process,
as in Section 5.5.