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Notes for the 2nd Midterm

Notes for the 2nd Midterm - • PAGE 293 • 2 inventory...

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(Q,R) Model : Core stochastic model for the continuous review system Period Review : (S,T) Models : PAGE 290 S = target inventory X t = inventory position In each review if: o X t < S, order up to S This case is a special one in which R = S Order is placed at every review period Trade-off between service level and investment 2 approaches: o Optimization: based on shortage cost π o Management approach: service level is set Assumes infinite replenishment Optional Replenishment Systems (optional review, min-max, (s, S)):
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Unformatted text preview: • PAGE 293 • 2 inventory levels are defined (s,S): o Review interval: T o On-hand inventory: I t o At the review point, if: I t < s, order S-I t I t > s, do not order • Advantage over (S,T) systems: o Reasonable order quantity is placed o Useful when both review and ordering costs are significant • Estimates for s and S can be obtained by computing (Q,R) and letting: o s = R o S = R + Q • Common in industry...
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