Inventory replenishment rules for systems exhibiting ‘on-off’ stochastic demand patterns

Abstract

Optimal replenishment rules are presented for determining both the best stock-up level and the best time to receive an order in a fixed order-interval inventory system subject to stochastic demand. In developing such rules, an important but so far neglected factor is taken explicitly into account, namely, the portion of the period during which demand cannot possibly occur. It is shown that replenishing the system at the right time is far more important than replenishing the system up to the right level. The findings have special importance for review of just-in-time policies which may inappropriately (in this context) suggest timing replenishment so as to coincide with commencement of demand.