Research Reports from the Department of Operations
Document Type
Report
Publication Date
1-1-1972
Abstract
Most of the objective functions of inventory control models have cost parameters, namely, set-up or order cost, inventory carrying cost, and shortage cost. Successful implementation of inventory models requires an accurate evaluation of these cost parameters. Of these costs, shortage costs are the hardest to handle. This paper investigates and derives a model to evaluate shortage cost parameters utilizing a queueing-theoretic approach. The basic idea is to identify the measurable factors of shortage cost for which the associated costs are much simpler to obtain. The shortage cost can then be expressed in terms of these component costs. When inventory level goes below zero the backlogged demands form a queueing process. Shortage costs arise because of "defections" of the customers. In queueing terminology, the loss of customers can be due to balking and reneging. Various losses and times associated with customer impatience can be evaluated using queueing theory methods. These in turn lead to the estimation of shortage costs.
Keywords
Operations research, Inventory control--Mathematical models, Queuing theory, Business logistics--Cost control, Demand (Economic theory), Supply and demand--Mathematical models, Industrial management
Publication Title
Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 248
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Oral, Muhittin and Subba Rao, S., "Evaluation of Shortage Costs - Part I An Objective Function and Queueing Theoretic Approach" (1972). Research Reports from the Department of Operations. 193.
https://commons.case.edu/wsom-ops-reports/193