Renewal approximation to optimal order quantity for a class of continuous‐review inventory systems

Izzet Sahin and Diptendu Sinha

Naval Research Logistics (NRL), 1987, vol. 34, issue 5, 655-667

Abstract: Using a wide range of demand distributions and parameter settings, we examine the performance of an easily computable order‐quantity approximation for a class of continuous‐review inventory systems under a compound‐renewal demand process. The approximation is derived by using some asymptotic results from renewal theory. The emphasis is on the conditions for the accuracy of the approximation. We find that when the item is to be stocked, the approximation is practically the same as the optimal order quantity, provided that the batch‐size coefficient of variation is ≦1. Otherwise, the ratio of setup (ordering) cost to mean interarrival time must be large enough, as prescribed by a simple condition derived in the article based on empirical considerations.

Date: 1987
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https://doi.org/10.1002/1520-6750(198710)34:53.0.CO;2-V

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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:34:y:1987:i:5:p:655-667

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