Dynamic Re-order Policies for Irregular and Sporadic Demand Profiles

Abstract

Irregular and sporadic demand profiles frequently occur in different contexts characterised either by a large fragmentation of client requests within a broad product mix or when new products are introduced. Their optimal management often requires the definition of approaches based on Key Performance Indicators (KPI) other than costs, which in the aforementioned situations are characterised by uncertainty. Specifically, holding costs and stock-out costs are difficult to quantify. This paper examines 104 dynamic re-order policies in an environment where demand patterns with very low demand frequency and demand size equal to very few items are required by customers. Furthermore, the cost structure is uncertain. The aforementioned alternative management approaches are experimentally compared in terms of the average inventory level, average and maximum lost demand and average number of stock-out they can ensure.