The integrated use of information and stocks in the management of uncertain lumpy demand

Abstract

This paper aims at presenting a new approach to the management of uncertain lumpy demand. After providing a comprehensive review of the related literature, a new approach is introduced here in order to reduce the need for stocks when coping with uncertain lumpy demand. The basic idea of this approach is that of exploiting available information within the company or within the company's supply chain, so as to minimize the impact of lumpy orders and reduce the need for stocks. Two theoretical models are presented here to address the trade-off between the benefit of the lower inventory level and the cost of the higher risk related to the anticipatory use of uncertain information: the first model treats the lumpy order quantity as deterministic, while the arrival of the order is considered as a stochastic event; the second model deals with the opposite situation, when the arrival of a lumpy order is certain, while the order quantity is uncertain. These new models turn out to have a relevant interpretative power, and seem useful in real-life management of lumpy demand, since they can boost running capital productivity resorting to information usually available within or around the company, although often not exploited.

Keywords:

• Lumpiness
• Uncertainty
• Stocks
• Information