Mathematical Analysis of an Inventory Case

This paper presents the adjustments in current theory of inventory that were required in a specific case. The demand during lead time was found to be skewed to the extent that it could not be represented by a two-parameter distribution. This skewness was handled by an augmentation of the standard deviation of the lead time demand. The analysis involving runout costs was complicated by the fact that, when one warehouse was short, it was possible sometimes to induce a customer to accept the delay inherent in delivery from another warehouse.