An EOQ Model with Random Variations in Demand

Percy H. Brill and Ben A. Chaouch
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Percy H. Brill: Faculty of Business Administration, University of Windsor, Ontario, Canada N9B 3P4
Ben A. Chaouch: Faculty of Business Administration, University of Windsor, Ontario, Canada N9B 3P4

Management Science, 1995, vol. 41, issue 5, 927-936

Abstract: This paper presents a model that incorporates variations in the demand rate at random time points into the inventory planning decision. These changes in demand may occur due to economic recessions, labor strife starting or ending, or other events that result in a period of time during which the rate of demand is shifted up or down from its current level. The paper uses system-point level-crossing theory to derive expressions for the distribution and expected value of on-hand inventory, ordering rate, and the expected total cost rate for a given ordering policy. A sensitivity analysis is conducted, and a number of qualitative properties are provided to illustrate the use of the results to obtain optimal order quantities.

Keywords: inventory; EOQ; demand disruptions; level-crossing theory (search for similar items in EconPapers)
Date: 1995
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