lecture9_SupplyChain_InventoryUncertainty

# Desired level of product availability higher levels

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desired level of product availability Higher levels of uncertainty require higher levels of safety inventory given a particular desired level of product availability Higher levels of desired product availability require higher levels of safety inventory given a particular level of uncertainty

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8 Measuring Demand Uncertainty Demand has a systematic component and a random component The estimate of the random component is the measure of demand uncertainty Random component is usually estimated by the standard deviation of demand Notation: D = Average demand per period σ D = standard deviation of demand per period L = lead time = time between when an order is placed and when it is received Uncertainty of demand during lead time is what is important
9 Measuring Demand Uncertainty P = demand during k periods = kD W = std dev of demand during k periods = σ D Sqrt(k) Coefficient of variation = cv = σ D /m = (std dev)/ mean= size of uncertainty relative to demand

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