The (s-1,s) Inventory Policy Under Compound Poisson Demand

Presentation of a mathematical foundation for a new approach to setting stock levels on recoverable items; namely, to calculate by item the steady state probabilities for the number of units in resupply (or repair). These probabilities describe the item's long-term behavior and represent the normalized values of the compound Poisson demand distribution, based on the mean of the supply distribution. Knowledge of these state probabilities enables one to compute several measures of item supply performance as a function of the spare stock, s. Traditional inventory analysis can then be applied to minimize total cost, based on estimates of holding cost and supply performance cost. Appendices describe the algorithm and the computer program for calculating stuttering Poisson state probabilities and the measures of effectiveness for the backorder case. Numerical illustrations are also provided.