Lecture7Ch.

7Poissondemand
mandagden31.oktober2016 11.51

MuckstadtChapter7BackgroundConcepts:AnIntroductiontothe(s1,s)PolicyunderPoisson
Demand

Soherewelookattheimplicationsoffollowingpolicy,calledan(s1,s)inventorypolicy.
Andhere,theorderquantitymatchesthesizeoftheorderdemandexactly.
AndwewillfocusonthecasewherethedemandprocessisaPoissonprocess.

Sohereweshowhowtocalculatestationarydistributions,howtodeterminekeystatisticalmeasures
ofsupplysystemperformance.
Andpresentoptimizationmodelsandalgorithmsforstocklevesbyusingan(s1,s)policy.

Theform(s1,s)isaspecializedformofthe(s,S)orderpolicysayingthat:
"iftheinventorylevelisonebelow(S1),thenplaceanordertobringtheinventorytoS".

Commonlyusedtocontrolexpensive,slowmovingitems,oraerospaceand/orrecoverabletime
inventorysystem(Repair).Soweusethispolicy,whenwehaveveryexpensiveproducts.Itcouldalso
bethatwearethedanishdefence,wherewehavebigexpensivetanks.Theseareveryexpensive,so
wedonotneedtohavealotofthemoninventory.

Poissondistribution=Discretedistributionthatexpressestheprobabilityofagivennumberofevents
occurringinafixedtimeintervalwithaknownaveragerateandindependentofeachother,couldbe
lettersperday,callsperhourinacallcentre,numberofdecayeventsfromaradioactivesource,failure
ofpartsofamachineetc.

Assumptionsandterminology
Singleproduced(willberelaxedlaterwhenwegetnmorethen1).
Poissondemandindependentfromperiodtoperiod.
Continuousreview.Herewealwayslookattheinventory.Weknowtheinventoryineverypoint
intime.
Leadtimeisindependentidenticallydistributed.
Allexcessdemandisbackordered.
Nofixedorderingcosts,nocapacitylimits(relaxedlater).

Preliminaries
Inventoryposition(Stocklevel)=Onhandinventory+inventoryonorderbackorderlevel.

Basestockpolicy:
Inagivenperiodiftheinventorypositionisbelowacertainbasestocklevels,thenitistriedtoraise
theinventorypositionuptolevels.
Ifthecapacityinthisperiodisinsufficienttodoso,thenitisallusedupsothattheinventoryposition
getsasclosetosaspossible.
Basestockpolicyisoptimalinanumberofdifferentenvironments.

PerformanceMeasures
Wehavedifferent:
1. FillrateF(s)=givenastocklevels,F(s)istheexpectedfractionofdemandsthatcanbesatisfied
immediatelyfromonehandinventory.
2. ReadyrateR(s)=measurestheprobabilitythatanitemobservedatarandompointintimehas
nobackorders,thusnetinventoryisnonnegative;R(s)isalwaysatleastashighasF(s).
3. BackordersB(s)=expectednumberofbackordersoutstandingatarandompointintime;
accountsforthelengthintimebackordersexist=demandratexaveragewaitingtimeof
demand;responsetimefocusmeasure!

Little'slaw:
Remember Little's Law with L demand rate, T average waiting time

ComputationofPerformanceMeasuresReadyrate:
Probabilitythattherearenobackordersexistingatarandompointintime,theprobabilitythatthe
numberofunitsinresupplyissorless:

ComputationofPerformanceMeasuresFillrate:
Thefillrateisobtainedfromthesteadystateprobabilities:
The fill rate is obtained from the steady state probabilities
pxIr u where is the expected number of units demanded
per order and Fls is the expected number of units filled per
customer order given by x<sl + 1 LJI pxIf x<s2 +
 1 1.11 1.12 x<s3 Llj p01f jssl where uj measures
the probability that a customer order is exactly j units

IncaseofasimplePoissondemandprocess(u=1),wehave:
Fs E P01r x<sl then we have the following Fls
= F s = Rs and Fs < Rs In case of a compound
Poisson process, Fls measures the expected
number of units that can be shipped on time

Furthermore, u measuresthatexpectednumberofunitsdemandedpertimeunit,couldbedays
withuistheexpectednumberofunitsdemandedperorder:
X. Fls Fls

ComputationofPerformanceMeasuresBackorders:
Bs = E x x>s Thus, there are x s units backordered if and only if
there are x units in resupply, x > s

MultipleItems:
Nowweneedtochangeafewthingsofthemeasurement.
Nowassumenitemtypesinthe"system",thenthesystemfillrateiscomputedasfollows:
F s = FiSi j=l j where F is the probability
that a customer demand is for item Ejl type i
when the customer order process is Poisson
based on assumption for singleitem order case
The expected number of backorders at a random
point in time is BiSi =
Readrateinmultiitemcasemodifiedto"operationalrate"thesystemisoperationalifandonlyifall
itemtypesareoperational(available).Theoperationalrateisgivenby:
0R = [l RiSi

Notation:
Ci = Unitcost.
b=Budgetlimit.
si=Stocklevel.
i i ui=Exp.Demandoverleadtimeforallitemtypes.
Bi (si ) = Backorders.

DerivationofOptimizationModelwithBudgetLimit
AccourdingtoPalm'stheorem,thesteadystateprobabilitydistributionforthenumberofunitson
orderwiththesupplierhasacompoundedPoissondistributionforeachitemtype.
The expected number of units on order for item type i is from
Little's law, hence E[on hand] = + BiSi where is the
probability that x units of item type i are on order. Recall s =
E[inventory position] = E [on hand] + E[on order] Bs

Wewanttominimizecosts,orwecansaybackorders,weusethisminimizationproblem:
n min Bis, subject to with Pi Xifii.
Onesolutiontothis,istouseLaGrangemultipliers.Andaftercalculations,wegettheformulatofind
thestocklevel:
with Si 0,1,.. min SFO,I,... e Yaqui + b + E min SFO,I,... Given a
value for e, we can consider the problem separately for each
item type.

Sonowtofindtheoptimalstocklevel,wewillusethisformula:
Recall: Find the smallest nonnegative integer value of s for
which 1 E Pxl x<s To find we have the following starting
point for calculation pxl There exists a > 0 such that 1 p01i
1 1 max p01i 1 1 p01i 1 , then for Let all i. l}