Optimising safety stocks and reorder points when the demand and the lead-time are probabilistic in cement manufacturing
by Karzan Mahdi Ghafour
International Journal of Procurement Management (IJPM), Vol. 11, No. 3, 2018

Abstract: Inventory control is an extremely challenging task, complicated by a probability of demand and lead-time. An inventory system attempts to balance between overstock and understock to reduce the total cost and achieve customer demand in a timely manner. The optimality of inventory policies for a cement industry is still unknown for many types of inventory systems. In this paper, probability distribution of demand during lead-time is considered when the demand and lead-time are probabilistic while extracting the optimal safety stock placement and the reorder point in cement manufacturing. Probability distributions of demand during lead-time include Pearson type 6 four-parameter, log-Pearson 3, fatigue life (Birnbaum-Saunders), and inverse Gaussian three-parameter distributions. The probability distribution of demand during lead-time is established when the demand and the lead-time are probabilistic; each one has a probability distribution function. The safety stock depends on the safety factor under certain service level and the standard deviation of demand during lead-time which can be obtained from the distribution. The quantities of the safety stock and the reorder point represent an optimal value at each position to avoid over or under stock, the most controversial issue in the inventory system.

Online publication date: Fri, 11-May-2018

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