The Sensitivity of Inventory Decisions to the Shape of Lead Time-Demand Distribution

Abstract

This paper studies the effects of the shape of the lead-time-demand (ltd) distribution on some basic inventory decisions. We found that the shape of the ltd distribution significantly affects the reorder point, stock-out risk, and expected lost sales of an inventory item. In the continuous-review(Q, R) model, the shape of the ltd distribution significantly affects the shortage cost component of the cost function; however, in most inventory systems, the shortage cost component accounts for a very small proportion of the system's total cost. Therefore the shape of the ltd distribution has little effect on the optimum (Q, R) solutions. We then discuss the implications of these findings.