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Renewal approximation to optimal order quantity for a class of continuous‐review inventory systems
Author(s) -
Sahin Izzet,
Sinha Diptendu
Publication year - 1987
Publication title -
naval research logistics (nrl)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.665
H-Index - 68
eISSN - 1520-6750
pISSN - 0894-069X
DOI - 10.1002/1520-6750(198710)34:5<655::aid-nav3220340506>3.0.co;2-v
Subject(s) - class (philosophy) , range (aeronautics) , renewal theory , simple (philosophy) , order (exchange) , mathematical optimization , mathematics , process (computing) , computer science , statistics , economics , philosophy , materials science , epistemology , finance , artificial intelligence , composite material , operating system
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.