Research Reports from the Department of Operations

Document Type

Report

Publication Date

5-1-1972

Abstract

In a previous report (Technical Memoranda No. 248) we formulated the problem of evaluating inventory shortage costs from a new perspective. In a single cycle which consisted of a no-stock out and a stock-out period, we identified and evaluated immediate shortage costs using results from queuing theory. A second part of the shortage costs is due to loss of customer goodwill and this has to be considered over a number of cycles. In the present report, we propose a method of evaluating the loss of customer goodwill. We show that the (Q,S,R) policy gives rise to a (R+S+2) - state semi-Markov process. Superposing the perturbed demand technique on the semi-Markov process model, we come up with estimates of the discounted expected cost due to loss of customer goodwill.

Keywords

Operations research, Inventory control--Mathematical models, Queuing theory, Business logistics--Cost control, Demand (Economic theory), Supply and demand--Mathematical models, Industrial management, Markov processes

Publication Title

Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University

Issue

Technical memorandum no. 249

Rights

This work is in the public domain and may be freely downloaded for personal or academic use

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