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Derivation of confidence intervals of service measures in a base-stock inventory control system with low-frequent demand

Christian Larsen ()
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Christian Larsen: Department of Business Studies, Aarhus School of Business, Postal: The Aarhus School of Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark

No L-2008-03, CORAL Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: We explore a base-stock system with backlogging where the demand process is a compound renewal process and the compound element is a delayed geometric distribution. For this setting it is proven in [4] that the long-run average service measures order fill rate (OFR) and volume fill rate (VFR) are equal in values. In [4] it is also demonstrated that although equal ex ante one will ex post observe differences as actual sample paths are different. By including a low-frequency assumption in the model, we are able to derive mathematical expressions of the confidence intervals one will get if OFR and VFR are estimated in a simulation using the regenerative method. Through numerical examples we show that of the two service measures it is OFR that can be estimated most accurately. However, simulation results show that the opposite conclusion holds if we instead consider finitehorizon service measures, namely per-cycle variants of OFR and VFR.

Keywords: Inventory control; base-stock systems; confidence intervals of service measures (search for similar items in EconPapers)
Date: 2008-01-01
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