Expected Average Inventory Level for an S, S-1 Inventory Policy | Formula

Ole Ersoy
Sep - 20  -  1 min

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;