Statistical measurement of the inventory shortage cost

Feng Xu

Journal of Applied Statistics, 2017, vol. 44, issue 4, 642-648

Abstract: In searching for the optimal inventory control policy, the objective is to minimize the expected total costs related, of which the shortage cost is an important element. Due to the difficulty in calculating the indirect cost of the loss of goodwill resulted from the shortage, practitioners and researchers often simply assume a fixed penalty cost on the inventory shortage or switch to the alternative method by assigning a specific customer service level. The development of an appropriate tool for measuring the shortage cost can help a business control the total costs and improve the productivity more effectively. This paper proposes probabilistic measurements of the shortage cost, based on mathematical relationship between the cost and the shortage amount. The derived closed-form estimates of the expected shortage cost value can then be applied to support the determination of the optimal inventory control policy.

Date: 2017
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/02664763.2016.1182129 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:japsta:v:44:y:2017:i:4:p:642-648

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/CJAS20

DOI: 10.1080/02664763.2016.1182129

Access Statistics for this article

Journal of Applied Statistics is currently edited by Robert Aykroyd

More articles in Journal of Applied Statistics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().