Controlling for variability in demand for an s,S inventory system

In the establishment of an s,S inventory system, emphasis is given to determining the review period, the nominal order point (s) and the maximum level of inventory (S), which aids in the calculation of the order quantity. The level of safety stock, which is predicated on the demand during the lead time and review period will be affected by the variability present in the demand. This paper investigates the operation of the s,S inventory system under the condition of each of four different demand distributions; the Uniform, Normal, Poisson and Beta. Demand relative to each distribution is randomly generated, a review period is chosen and the levels of s and S are varied in a simulation model of the inventory system. The basic costs - inventory, order, stockout - are calculated to show the effect of the demand distribution.