| Abstract: | This paper deals with an inventory situation where the rate of demand for units stocked is known, but fluctuating over time. The focus of attention is on reserve stock. In an ideal world, where demand is known well in advance and where suppliers maintain scheduled shipping dates, there would be little need to hold any form of inventory other than a limited in-process stock. In practice however, supply interruptions are likely to occur. In this case an inventory acts as buffer to withstand variations between supply and demand. A mathematical model to determine the optimum reserve stock needed to minimize the expected total inventory cost of carrying the reserve inventory and cost of stockouts is developed. |
