IDEAS home Printed from https://ideas.repec.org/a/wly/navres/v44y1997i2p165-186.html
   My bibliography  Save this article

Robustness of the normal approximation of lead‐time demand in a distribution setting

Author

Listed:
  • John E. Tyworth
  • Liam O'Neill

Abstract

Previous studies criticize the general use of the normal approximation of lead‐time demand on the grounds that it can lead to serious errors in safety stock. We reexamine this issue for the distribution of fast‐moving finished goods. We first determine the optimal reorder points and quantities by using the classical normal‐approximation method and a theoretically correct procedure. We then evaluate the misspecification error of the normal approximation solution with respect to safety stock, logistics‐system costs, total costs (logistics costs, including acquisition costs), and fill rates. The results provide evidence that the normal approximation is robust with respect to both cost and service for seven major industry groups. © 1997 John Wiley & Sons, Inc. Naval Research Logistics 44: 165–186, 1997

Suggested Citation

  • John E. Tyworth & Liam O'Neill, 1997. "Robustness of the normal approximation of lead‐time demand in a distribution setting," Naval Research Logistics (NRL), John Wiley & Sons, vol. 44(2), pages 165-186, March.
    • Handle: RePEc:wly:navres:v:44:y:1997:i:2:p:165-186
    DOI: 10.1002/(SICI)1520-6750(199703)44:23.0.CO;2-7
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/(SICI)1520-6750(199703)44:23.0.CO;2-7
    Download Restriction: no
    File URL: https://libkey.io/10.1002/(SICI)1520-6750(199703)44:23.0.CO;2-7?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
    ---><---

    References listed on IDEAS

    as
    1. Eliezer Naddor, 1978. "Note--Sensitivity to Distributions in Inventory Systems," Management Science, INFORMS, vol. 24(16), pages 1769-1772, December.
    2. Tadikamalla, Pandu R, 1984. "A comparison of several approximations to the lead time demand distribution," Omega, Elsevier, vol. 12(6), pages 575-581.
    3. 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.
    4. Tyworth, John E. & Rao, Kent & Stenger, Alan J., 1991. "A Logistics Cost Model for Purchasing Transportation to Replenish High Demand Items," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 32(1).
    5. M. Eric Johnson & Hau L. Lee & Tom Davis & Robert Hall, 1995. "Expressions for item fill rates in periodic inventory systems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 42(1), pages 57-80, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Janssen, E. & Strijbosch, L.W.G. & Brekelmans, R.C.M., 2006. "Assessing the Effects of using Demand Parameters Estimates in Inventory Control," Discussion Paper 2006-90, Tilburg University, Center for Economic Research.
    2. Barros, Júlio & Cortez, Paulo & Carvalho, M. Sameiro, 2021. "A systematic literature review about dimensioning safety stock under uncertainties and risks in the procurement process," Operations Research Perspectives, Elsevier, vol. 8(C).
    3. Chatfield, Dean C. & Pritchard, Alan M., 2018. "Crossover aware base stock decisions for service-driven systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 312-330.
    4. Li, Xiaoming, 2020. "Valuing lead-time and its variance in batch-ordering inventory policies," International Journal of Production Economics, Elsevier, vol. 228(C).
    5. Dominguez, Roberto & Cannella, Salvatore & Ponte, Borja & Framinan, Jose M., 2020. "On the dynamics of closed-loop supply chains under remanufacturing lead time variability," Omega, Elsevier, vol. 97(C).
    6. Birisci, Esma & McGarvey, Ronald G., 2022. "Cost-versus environmentally-optimal production in institutional food service operations," Socio-Economic Planning Sciences, Elsevier, vol. 82(PA).
    7. Saldanha, John P., 2022. "Estimating the reorder point for a fill-rate target under a continuous review policy in the presence of non-standard lead-time demand distributions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    8. Minken, Harald & Johansen, Bjørn Gjerde, 2019. "A logistics cost function with explicit transport costs," Economics of Transportation, Elsevier, vol. 19(C), pages 1-1.
    9. Mamonov, Nikolay & Golubyatnikov, Evgeny & Kanevskiy, Daniel & Gusakov, Igor, 2022. "GoodsForecast second-place solution in M5 Uncertainty track: Combining heterogeneous models for a quantile estimation task," International Journal of Forecasting, Elsevier, vol. 38(4), pages 1434-1441.
    10. Ting-Chen Hu & Kuo-Chen Hung & Kuo-Lung Yang, 2019. "The Convergence of Gallego’s Iterative Method for Distribution-Free Inventory Models," Mathematics, MDPI, vol. 7(5), pages 1-10, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vernimmen, Bert & Dullaert, Wout & Willemé, Peter & Witlox, Frank, 2008. "Using the inventory-theoretic framework to determine cost-minimizing supply strategies in a stochastic setting," International Journal of Production Economics, Elsevier, vol. 115(1), pages 248-259, September.
    2. Anne E. Lordahl & James H. Bookbinder, 1994. "Order‐statistic calculation, costs, and service in an (s, Q) inventory system," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(1), pages 81-97, February.
    3. Daniela Favaretto & Alessandro Marin & Marco Tolotti, 2023. "A theoretical validation of the DDMRP reorder policy," Computational Management Science, Springer, vol. 20(1), pages 1-28, December.
    4. Hon‐Shiang Lau & Amy Hing‐Ling Lau, 2003. "Nonrobustness of the normal approximation of lead‐time demand in a (Q, R) system," Naval Research Logistics (NRL), John Wiley & Sons, vol. 50(2), pages 149-166, March.
    5. John P. Saldanha & Bradley S. Price & Douglas J. Thomas, 2023. "A nonparametric approach for setting safety stock levels," Production and Operations Management, Production and Operations Management Society, vol. 32(4), pages 1150-1168, April.
    6. Rossetti, Manuel D. & Yasin Ünlü, 2011. "Evaluating the robustness of lead time demand models," International Journal of Production Economics, Elsevier, vol. 134(1), pages 159-176, November.
    7. Georgia Perakis & Guillaume Roels, 2008. "Regret in the Newsvendor Model with Partial Information," Operations Research, INFORMS, vol. 56(1), pages 188-203, February.
    8. Scott Webster & Z. Kevin Weng, 2001. "Improving Repetitive Manufacturing Systems: Model and Insights," Operations Research, INFORMS, vol. 49(1), pages 99-106, February.
    9. Kumar, Anupam & Evers, Philip T., 2015. "Setting safety stock based on imprecise records," International Journal of Production Economics, Elsevier, vol. 169(C), pages 68-75.
    10. Chan, Chi Kin & Fang, Fei & Langevin, André, 2018. "Single-vendor multi-buyer supply chain coordination with stochastic demand," International Journal of Production Economics, Elsevier, vol. 206(C), pages 110-133.
    11. Chen, Youhua Frank, 2005. "Fractional programming approach to two stochastic inventory problems," European Journal of Operational Research, Elsevier, vol. 160(1), pages 63-71, January.
    12. Dev, Navin K. & Shankar, Ravi & Swami, Sanjeev, 2020. "Diffusion of green products in industry 4.0: Reverse logistics issues during design of inventory and production planning system," International Journal of Production Economics, Elsevier, vol. 223(C).
    13. Riezebos, Jan, 2006. "Inventory order crossovers," International Journal of Production Economics, Elsevier, vol. 104(2), pages 666-675, December.
    14. Qi, Mingyao & Yang, Ying & Cheng, Chun, 2023. "Location and inventory pre-positioning problem under uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 177(C).
    15. Sandun C. Perera & Suresh P. Sethi, 2023. "A survey of stochastic inventory models with fixed costs: Optimality of (s, S) and (s, S)‐type policies—Discrete‐time case," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 131-153, January.
    16. Sharfuddin Lisan, 2018. "Safety stock determination of uncertain demand and mutually dependent variables," International Journal of Business and Social Research, LAR Center Press, vol. 8(3), pages 1-11, March.
    17. Biyu He & Franklin Dexter & Alex Macario & Stefanos Zenios, 2012. "The Timing of Staffing Decisions in Hospital Operating Rooms: Incorporating Workload Heterogeneity into the Newsvendor Problem," Manufacturing & Service Operations Management, INFORMS, vol. 14(1), pages 99-114, January.
    18. Strijbosch, L.W.G. & Moors, J.J.A., 1998. "Inventory Control : The Impact of Unknown Demand Distribution," Other publications TiSEM bf5529df-b993-4816-9839-0, Tilburg University, School of Economics and Management.
    19. Frank Chen & Jennifer K. Ryan & David Simchi‐Levi, 2000. "The impact of exponential smoothing forecasts on the bullwhip effect," Naval Research Logistics (NRL), John Wiley & Sons, vol. 47(4), pages 269-286, June.
    20. M. Eric Johnson & Hau L. Lee & Tom Davis & Robert Hall, 1995. "Expressions for item fill rates in periodic inventory systems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 42(1), pages 57-80, February.

    More about this item

    Statistics

    Access and download statistics

    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:wly:navres:v:44:y:1997:i:2:p:165-186. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1520-6750 .

    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.