Inventory Control Guide Page 20
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404 Inventory control: Stochastic Models
Up to now we considered models with deterministic and constant demand. We will now
address problems where the demand is subject to stochastic variations.
4.1 Random Demand
The EOQ models look for a compromise between the holding, the order and item costs.
↔ Order Cost
Deterministic Demand:
Holding
cost
Item Cost
Inventory
Q
-D
R
time
Lt
T = Q/D
When demand is deterministic (EOQ model), the inventory evolves deterministically too. An
order is place when there are R=LtD units in inventory. The delivery occurs exactly when the
inventory vanishes.
Random Demand
Risk of Shortage / Stockout
When the demand becomes random, the notion of shortage (or stockout) is introduced.
Here is an example. We see that the system is out of inventory short before day 10.
D = 1, Q = 8, Lt = 5, R = 5
Inventory
10
8
6
R
4
2
0
0
5
10
15
20
25
30
35
-2
This means that the customers who place orders at that time cannot be directly served from
the shelves. They must wait. We say that their orders are "backordered".
Backorders
Prod 2100-2110
Inventory Control
19
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