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Analysis of order-up-to-level inventory systems with compound Poisson demand

Author

Listed:
  • Zied Jemai

    () (LGI - Laboratoire Génie Industriel - EA 2606 - CentraleSupélec)

  • M. Babai

    () (Bordeaux Management School (BEM))

  • Y. Dallery

    (LGI - Laboratoire Génie Industriel - EA 2606 - CentraleSupélec)

Abstract

We analyse a single echelon single item inventory system where the demand and the lead time are sto-chastic. Demand is modelled as a compound Poisson process and the stock is controlled according to a continuous time order-up-to (OUT) level policy. We propose a method for determining the optimal OUT level for cost oriented inventory systems where unfilled demands are backordered. We first establish an analytical characterization of the optimal OUT level. The actual calculation is based on a numerical procedure the accuracy of which can be set as highly as desired. By means of a numerical investigation, we show that the method is very efficient in calculating the optimal OUT level. We compare our results with those obtained using an approximation proposed in the literature and we show that there is a significant difference in accuracy for slow moving items. Our work allows insights to be gained on stock control related issues for both fast and slow moving Stock Keeping Units (SKUs).

Suggested Citation

  • Zied Jemai & M. Babai & Y. Dallery, 2011. "Analysis of order-up-to-level inventory systems with compound Poisson demand," Post-Print hal-01672399, HAL.
  • Handle: RePEc:hal:journl:hal-01672399
    DOI: 10.1016/j.ejor.2010.10.004
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01672399
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