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Property Safety Stock Policy for Correlated Commodities Based on Probability Inequality

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  • Takashi Shinzato

Abstract

Deriving the optimal safety stock quantity with which to meet customer satisfaction is one of the most important topics in stock management. However, it is difficult to control the stock management of correlated marketable merchandise when using an inventory control method that was developed under the assumption that the demands are not correlated. For this, we propose a deterministic approach that uses a probability inequality to derive a reasonable safety stock for the case in which we know the correlation between various commodities. Moreover, over a given lead time, the relation between the appropriate safety stock and the allowable stockout rate is analytically derived, and the potential of our proposed procedure is validated by numerical experiments.

Suggested Citation

  • Takashi Shinzato, 2017. "Property Safety Stock Policy for Correlated Commodities Based on Probability Inequality," Papers 1701.02245, arXiv.org.
    • Handle: RePEc:arx:papers:1701.02245
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    References listed on IDEAS

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    1. Fotopoulos, Stergios & Wang, Min-Chiang & Rao, S. Subba, 1988. "Safety stock determination with correlated demands and arbitrary lead times," European Journal of Operational Research, Elsevier, vol. 35(2), pages 172-181, May.
    2. Zhang, Ren-qian & Kaku, Ikou & Xiao, Yi-yong, 2011. "Deterministic EOQ with partial backordering and correlated demand caused by cross-selling," European Journal of Operational Research, Elsevier, vol. 210(3), pages 537-551, May.
    3. Takashi Shinzato, 2015. "Self-Averaging Property of Minimal Investment Risk of Mean-Variance Model," PLOS ONE, Public Library of Science, vol. 10(7), pages 1-24, July.
    4. Wang, Min-Chiang, 1987. "Estimating the lead-time demand distribution when the daily demand is non-normal and autocorrelated Hon-Shiang LAU," European Journal of Operational Research, Elsevier, vol. 29(1), pages 60-69, April.
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