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A Sensitivity analysis of stochastic inventory systems

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This paper derives sensitivity properties of the single item inventory model with stochastic demand and positive set-up costs. The analysis emphasizes the effect of changes in the variability of the leadtime demand. For the order-quantity/reorder-point systems, it is proved that when the variability of the leadtime demand increases the optimal order quantity increases, but, somewhat contrary to the conventional wisdom, the optimal reorder point does not necessarily increase; the minimum cost of the inventory system also increases, and it increases at a slower rate than and converges to the cost of the optimal base-stock policy. The cost performance becomes more robust to the choice of order quantity. In addition, it is shown that both the optimal reorder point and the optimal order-up-to level decrease or increase as the inventory holding or shortage penalty/cost increases

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/Inseadwp1992/92-16.pdf

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Copyright INSEAD. All rights reserved