The Effects of Demand-Forecast Fluctuations on Customer Service and Inventory Cost When Demand is Lumpy

Abstract

This paper examines the interactions between the demand forecasting and reordering subsystems in inventory management. Simulation is used to study the average discrepancy between a desired customer service level and that actually achieved, and the increase in average annual inventory cost resulting from fluctuations in the forecast demand parameters of several lumpy demand patterns.

Keywords:

• customer service
• demand forecasting
• inventory management
• simulation