Case: Lead Time Demand >= S
When the lead time demand
is greater than or equal to the initial stocking level (S)
the formula for approximating expected average inventory level is:
initialStockingLevel / (leadTimeDemand+1);
The reason we add to 1 leadTimeDemand
in the denominator to cover the
edge case where both the initialStockingLevel
and the leadTimeDemand
are
1.
In this case, the expected average inventory level is 1/2.
Case: Lead Time Demand < S
(initialStockingLevel - leadTimeDemand) + 0.5;