SERVOMECHANISMS, EXPONENTIAL SMOOTHING, AND A MULTIECHELON INVENTORY PROBLEM
DECISION STUDIES GROUP PALO ALTO CA
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A periodic review inventory system is viewed as a servomechanism in which input is demand and output is inventory level. An order rule embodying a forecast procedure is determined. When demand is random with constant mean and finite exponential smoothing is used in the forecast, the variance of the inventory on hand at the end of each period is derived. An unbiased modification of exponential smoothing finite exponential smoothing is introduced, and the order rule employing this procedure determined. The variation in inventory at the end of the period is obtained and compared with that obtained with exponential smoothing. Bounds and asymptotic expressions for the inventory variances are derived, and the performance of the two order rules is examined in a computer simulation. The servomechanism approach is employed to examine a multiechelon supply system. Order rules embodying forecast procedures are obtained for each facility. A system consisting of two facilities supplied by a depot facility is simulated and the effects of changing the information supplied to the depot is examined.
- Operations Research