What is it about?
For inventory management of an item, we need to establish a reorder point based on a demand forecast. Classical techniques assume that parameters of demand forecast are known. However, demand forecasts are usually obtained from data and estimates that have a certain margin of uncertainty. This article explains how to obtain reorder points based on demand forecasts for which estimated parameters have a certain degree of uncertainty.
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Why is it important?
When parameter uncertainty is not considered in demand forecasts, reorder points for inventory management are usually underestimated, and servcice levels are lower than expected. Using the methodologies proposed in this article will allow us to obtain proper service levels for inventory management.
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This page is a summary of: On the incorporation of parameter uncertainty for inventory management using simulation, International Transactions in Operational Research, April 2013, Wiley, DOI: 10.1111/itor.12018.
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