Operating Characteristics for an Inventory Model that Special Handles Extreme Value Demand
NORTH CAROLINA UNIV AT CHAPEL HILL SCHOOL OF BUSINESS ADMINISTRATION
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In this report, we extend the results shown in Technical Report 19 by adding a set-up cost to the infinite horizon inventory model that special handles any demand that exceeds some value tau. We generate 2268 cases and present the operating characteristics of the special handling model as compared to the operating characteristics without special handling. We show that in 99.5 of the cases special handling reduces the total expected costs excluding special handling costs. Most of the cost reduction is as a result of decreased inventory investment with a smaller proportion due to decreased penalty costs and decreased set-up costs. In many cases the reduction in inventory investment significantly exceeds the amount of orders left unfilled due to special handling.
- Administration and Management
- Operations Research