A study of inventory policy for correlated demands

Min-Chiang Wang

International Journal of Business and Systems Research, 2007, vol. 1, issue 2, 135-147

Abstract: Simultaneous determination of order quantity (Q) and reorder point (r) is investigated for correlated demand under a continuous review inventory management system. Several parametric models for representing demand during lead time are suggested. Optimal choice of the pairs (Q, r) is obtained by minimising the expected total inventory cost. Numerical investigation shows that the correlation of demand has substantial impact on the choice of (Q, r) and the total inventory cost. If, however, the annual demand is considered as fixed, then the correlation has strong effect only on r, but not on Q. It is advisable to properly estimate the correlation of the demand prior to the inventory decisions for better planning.

Keywords: inventory management; order quantity; reorder point; ARIMA models; parametric approximations; correlated demands. (search for similar items in EconPapers)
Date: 2007
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