The Effect of Lead Time and Demand Uncertainties in (r, q) Inventory Systems

Authors:
Jing-Sheng Song;Hanqin Zhang;Yumei Hou;Mingzheng Wang
Affiliations:
The Fuqua School of Business, Duke University, Durham, North Carolina 27708, and Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai 200052, China;Institute of Applied Mathematics, Academia Sinica, Beijing 100080, China, and Business School, National University of Singapore, Singapore;Yanshan University, Qinhuangdao 066004, Hebei Province, China;Dalian University of Technology, Dalian 116024, China
Venue:
Operations Research
Year:
2010

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Abstract

We study a single-item (r, q) inventory system, where r is the reorder point and q is the order quantity. The demand is a compound-Poisson process. We investigate the behavior of the optimal policy parameters and the long-run average cost of the system in response to stochastically shorter or less-variable lead times. We show that although some of the properties of the base-stock system can be extended to this more general model, some cannot. The same findings also apply when the comparison is conducted on the lead-time demand distributions.