The Use of Versatile Distribution Families in Some Stochastic Inventory Calculations

Abstract

Previous works on stochastic inventory problems have often assumed that an item's lead time demand follows a distribution such as the normal, the γ or the Weibull. First, this paper argues that these convenient distributions may be overly restrictive and unrealistic, and points out the versatility and realism of using four-parameter distributions of the Pearson's and the Schmeiser-Deutsch's systems. Second, using these four-parameter distributions, this paper presents practical `manual methods for computing the stock-out probability, reorder level and expected lost sales of an inventory item and for solving the lot-size reorder-point model. Some of these methods are actually simpler than the ones developed previously for the more restrictive distributions.