Due to increase in the frequency of order placement and the availability of multiple suppliers at different geographical locations, the occurrences of more than one outstanding order at a single point of time have grown substantially. Conventional simultaneous approach uses lead time demand distribution which ignores outstanding orders and overestimates inventory cost. Therefore, for true estimation of inventory cost a reorder point, order quantity inventory policy is developed by recognizing the outstanding orders. The work is done in two phases. In the first phase an algorithm is designed to
determine the number of outstanding orders at each period andregression equation is developed to determine the standard deviation of outstanding orders for stochastic inventory system.
In the second phase,expression for variance of shortfall distribution is developed using expected demand and variance of outstanding orders.A numerical problem is taken to illustrate the benefits of considering outstanding orders over ignoring them. Simulation is used to compute the optimal parameters of
inventory system such as total inventory cost, order quantity and safety stock factor. It has been found that the use of shortfall distribution (simulation) in comparison to lead time distribution (simultaneous approach) brings down the inventory cost and order quantity by 36.12% and 72.12%. Moreover, safety stock factor is increased by 86.04% with the use of inventory shortfall distribution in place of lead time distribution. This proposed approach of shortfall distribution is widely applicable in determination of performance parameters in JIT environment, where frequent ordering leads to large number of outstanding orders at a same point of time. A novel algorithm is designed to determine the number of outstanding orders at each period. Regression equation between standard deviation of outstanding orders and time between orders is developed.The behavior of variance of outstanding orders is studied with respect to change in time between orders. The inventory shortfall distribution approach is used for reorder point order quantity inventory
Algorithm, Outstanding Orders, Inventory, Stochastic