Measuring Item FillRate Performance in a Finite Horizon
Article
OPEN
Douglas J. Thomas
(2005)

Journal:
Manufacturing & Service Operations Management,
volume
7,
issue
1 September,
pages
7480

Related identifiers:
doi: 10.1287/msom.1040.0064

Subject:
inventory, basestock policy, servicelevel constraint
The standard treatment of fill rate relies on stationary and serially independent demand over an infinite horizon. Even if demand is stationary, managers are held accountable for performance over a finite horizon. In a finite horizon, the fill rate is a random variable. Studying the distribution is relevant because a vendor may be subject to financial penalty if she fails to achieve her target fill rate over a specified finite period. It is known that for a zero lead time, basestock model, the expected value of a finitehorizon fill rate exceeds the longrun fill rate. In this paper, I investigate the behavior of the distribution of the finitehorizon fill rate when a stationary basestock policy is used to control inventory. For a vendor facing a finitehorizon, fillratelevel contract and using a stationary stocking policy, I examine how the the length of the review horizon (i.e., monthly or quarterly), the demand distribution, and the cost of failing to meet the target affect the stocking decision.