IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v34y1988i11p1380-1390.html
   My bibliography  Save this article

Determining Safety Stock in the Presence of Stochastic Lead Time and Demand

Author

Listed:
  • Gary D. Eppen

    (Graduate School of Business, University of Chicago, Chicago, Illinois 60637)

  • R. Kipp Martin

    (Graduate School of Business, University of Chicago, Chicago, Illinois 60637)

Abstract

We consider the problem of setting safety stock when both the demand in a period and the lead time are random variables. There are two cases to consider. In the first case the parameters of the demand and lead time distributions are known; in the second case they are unknown and must be estimated. For the case of known parameters a standard procedure is presented in the literature. In this paper, examples are used to show that this procedure can yield results that are far from the desired result. A correct procedure is presented. When the parameters are unknown, it is assumed that a simple exponential smoothing model is used to generate estimates of demand in each period and that a discrete distribution of the lead time can be developed from historical data. A correct procedure for setting safety stocks that is based on these two inputs is given for two popular demand models. The approach is easily generalized to other models of demand. Safety stock calculation is simplified when certain normality assumptions are valid. Simulation results in the Appendix indicate when these assumptions about normality are reasonable.

Suggested Citation

  • Gary D. Eppen & R. Kipp Martin, 1988. "Determining Safety Stock in the Presence of Stochastic Lead Time and Demand," Management Science, INFORMS, vol. 34(11), pages 1380-1390, November.
    • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:11:p:1380-1390
    DOI: 10.1287/mnsc.34.11.1380
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.34.11.1380
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.34.11.1380?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:34:y:1988:i:11:p:1380-1390. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.