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Ql =
(1)
hl
From the (approximating) formulae developed in class for the fill rate of a
(Q, r)-inventory system, we have:
S(Ql , rl ) = 1
1
1
[B(rl ) B(rl + Ql )] 1 B(rl ) = a
Ql
Ql
B(rl ) = (1 a)Ql .
(2)
Also, from the assumed normality of the lead-time demand, we have that
B(rl ) = l L(
rl l
)
l
(3)
where L() is the loss function for the standardized normal distribution. From
Eqs 2 and 3, we get:
rl l
) = (1 a)Ql
l
rl l
1a
L(
)=
Q
l
l l
rl l
1a
= L1 (
Q )
l
l l
l L(
(4)
at the point 1a
l Ql defined by the values of a, l and Ql . From Eq. 4 we have that
the safety stock carried at each local inventory system is given by
ssl = rl l = l L1 (
1a
Q ),
l l
(5)
1a
Q ).
l l
(6)
Next, consider the substitution of the above distributed inventory system with
a centralized inventory operation with the same ordering and holding cost A and
h. This facility has also the same replenishment lead time l and it is operated at
the same target fill rate a. On the other hand, this facility faces the cumulative demand faced by the original n inventory systems, and therefore, its expected annual
demand is Dc = n Dl and its lead-time demand is normally distributed with mean
(7)
where Xli is the (random) regional lead-time demand for region i = 1, . . . , n, and (ii)
further assuming that the regional demands Xli are mutually independent. Then,
E[Xc ] = E[Xl1 ] + . . . + E[Xln ]
Var[Xc ] =
Var[Xl1 ] + . . . +Var[Xln ]
(8)
(9)
From the above discussion we also have that an optimized selection for the
order size of the centralized inventory is
r
r
2ADc
2AnDl
=
= n Ql
(10)
Qc =
h
h
2
But then, the requirement for a target fill rate of a implies that
1
B(rc ) = a
Q
B(rc ) = (1 a)Qc
rc c
c L(
) = (1 a)Qc
c
rc c
1a
L(
)=
Q
c
c c
1a
rc c
)=
L(
nQl
c
nl
rc c
1a
L(
)=
Q
c
l l
1a
rc c
= L1 (
Q )
c
l l
1a
ssc = rc c = c L1 (
Q )
l l
1a
Q )
ssc = n l L1 (
l l
S(Qc , rc ) 1
(11)
sstot
l
= n
ssc
(12)