(r,S) Policy

In this chapter of the book, the $(s,q)$ inventory policy is discussed.

Summary of discussed problems:

  • Decision rule
  • Period demands (customer order size greater than 1)
  • Periodic review (daily review, undershoot)
  • Service level
  • Backlog at the beginning of a cycle
  • Backlog at the end of a cycle
  • Numerical examples for gamma distribution, normal distribution, empirical discrete distribution
  • Average costs

The $(r,S$) policy with review period $r=1$ is called "basestock policy". In this case, the size of a replenishment order is equal to the observed demand of the current period.

If, $r>1$, the $(r,S)$ policy is transformed into a basestock policy by setting the standard demand period equal to the review period length. This simplification leads to wrong results, if the replenishment lead time is not an integer multiple of the review period.