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Renewal approximation to optimal order quantity for a class of continuous‐review inventory systems

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  • Izzet Sahin
  • Diptendu Sinha

Abstract

Using a wide range of demand distributions and parameter settings, we examine the performance of an easily computable order‐quantity approximation for a class of continuous‐review inventory systems under a compound‐renewal demand process. The approximation is derived by using some asymptotic results from renewal theory. The emphasis is on the conditions for the accuracy of the approximation. We find that when the item is to be stocked, the approximation is practically the same as the optimal order quantity, provided that the batch‐size coefficient of variation is ≦1. Otherwise, the ratio of setup (ordering) cost to mean interarrival time must be large enough, as prescribed by a simple condition derived in the article based on empirical considerations.

Suggested Citation

  • Izzet Sahin & Diptendu Sinha, 1987. "Renewal approximation to optimal order quantity for a class of continuous‐review inventory systems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 34(5), pages 655-667, October.
    • Handle: RePEc:wly:navres:v:34:y:1987:i:5:p:655-667
    DOI: 10.1002/1520-6750(198710)34:53.0.CO;2-V
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    References listed on IDEAS

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    1. Steven Nahmias, 1976. "On the equivalence of three approximate continuous review inventory models," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 23(1), pages 31-36, March.
    2. Shaler Stidham, 1977. "Cost Models for Stochastic Clearing Systems," Operations Research, INFORMS, vol. 25(1), pages 100-127, February.
    3. Blyth C. Archibald & Edward A. Silver, 1978. "(s, S) Policies Under Continuous Review and Discrete Compound Poisson Demand," Management Science, INFORMS, vol. 24(9), pages 899-909, May.
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