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Lecture 9Lecture 9 Inventory ControlInventory Control
Subject to Uncertain DemandSubject to Uncertain Demand
(3)(3)
Ye ChengYe Cheng
Dept. of Industrial EngineeringDept. of Industrial Engineering
Tsinghua UniversityTsinghua University 1
Service Levels in (Q, R) Systems
It is difficult to determine an exact value for the
stock-out cost p
Loss of goodwill
Potential delays to other area of the system
Service level:the probability that a demand
or a collection of demands is met
Type 1 service Type 2 service
Ye Cheng, Dept. IE, Tsinghua University PPC Lecture 9 Inventory Control Subject to Uncertain Demand (3) 2
Type 1 Service
Service level α , the probability of not stocking out in
the lead time
To determine the optimal (Q, R)
Determine R to satisfy the equation F(R) = α
Set Q = EOQ
α is the proportion of cycles in which no stock-out occurs
A shortage occurrence has the same result independent of its
time or amount
e.g., a production line is stopped whether 1 unit or 100 units are short
Ye Cheng, Dept. IE, Tsinghua University PPC Lecture 9 Inventory Control Subject to Uncertain Demand (3) 3
Type 2 Service
Service level β , the proportion of demands that are
met from stock
1 – β = n(R) / Q , the average fraction of demands
that stock out each cycle
Use the EOQ to estimate the lot size
EOQ is not optimal, but close to optimal
Find R to solve n(R) = EOQ(1 – β )
Ye Cheng, Dept. IE, Tsinghua University PPC Lecture 9 Inventory Control Subject to Uncertain Demand (3) 4
Example of Service Levels in (Q, R) Systems
Harvey’s Specialty Shop. Harvey feels
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