The Concept of Semi-Variance as a Tool for Safety Inventory Decisions in Case of Uncertain Demand
Modelling and Simulation '2017: The European Simulation and Modelling Conference 2017 (ESM '2017): Proceedings 2017
Katrien Ramaekers, Gaļina Merkurjeva, Gerrit K. Janssens

An inventory system containing uncertainty, e.g. in demand or in lead-time requires to determine a safety inventory for re-ordering. The decision models need a probability distribution of the demand during lead-time. In the literature on inventory control, mostly a Normal distribution for describing this demand is assumed. Based on the knowledge of the variance and on the distribution assumption, the safety inventory is calculated, given a prescribed customer service level. However, the functional form of the probability distribution in practice might look different from the shape of a Normal distribution and by this wrong decisions are made which result in high costs or low service level. It is investigated here whether the use of semi-variance is more robust to a deviation in the shape from the Normal distribution. The determination of the safety inventory is worked out for a triangular distribution as an illustrative example.


Keywords
Inventory management, safety inventory, semi-variance

Ramaekers, K., Merkurjeva, G., Janssens, G. The Concept of Semi-Variance as a Tool for Safety Inventory Decisions in Case of Uncertain Demand. In: Modelling and Simulation '2017: The European Simulation and Modelling Conference 2017 (ESM '2017): Proceedings, Portugal, Lisbon, 25-27 October, 2017. Ostend: EUROSYS, 2017, pp.201-205. ISBN 978-9492859-00-6.

Publication language
English (en)
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