Abstract
The establishment of a reorder point in an inventory control system typically requires values for the mean and the standard deviation of the demand during the replenishment lead time. These quantities are usually estimated from some sample demand data. In this paper, for a common type of control system, we develop the expected percentage cost penalty of using this approach as compared with knowing the true values of the mean and standard deviation. This should be of use to practitioners in developing guidelines as to how much sample data is needed to keep average cost penalties reasonably low.
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