Abstract:
In this paper we present a single-item, continuous monitoring inventory model with probabilistic demand forthe item and probabilistic lead time of order replenishment. It is assumed that demand follows Bernoullidistribution and an order is placed after stock becomes zero. The model is amenable to exact analysis and theoptimal order quantity has a closed-form solution. Also, it is shown that this solution is the basicdeterministic economic order quantity formula applied with average demand rate, if it is further assumed thatthe lead time is zero. Cost of an optimal solution of the model may be used as an upper bound for the same ofsome other more general policies.
