Inventory Mgmt.

Distribution of Demand During

Lead Time

Distribution of demand during the lead time

Demand

Deterministic Random

dLT = D LT dLT = D LT
Lead Time Deterministic
dLT = 0 dLT = D LT

dLT = D LT dLT = D LT
Random 2
dLT = D LT dLT = LT D2 + D LT
2

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Inventory Mgmt.

Appendix

Sum of random variables

Let D1 and D2 be two independent random variables with

expected values 1 and 2 and standard deviations 1 and 2.
Then,
E (aD1 + bD2 ) = aE (D1 ) + bE (D2 ) = a1 + b 2
Var (aD1 + bD2 ) = a 2Var (D1 ) + b 2Var (D2 ) = a 2 12 + b 2 22
std (aD1 + bD2 ) = a 2 12 + b 2 22
std (D1 + D2 ) = 12 + 22
Therefore,

E (D1 + D2 + ...... + Dn ) = 1 + 2 + ..... + n = n , if 1 = 2 = ..... = n

std (D1 + D2 + ...... + Dn ) = 12 + 22 + ..... + n2 = n , if 1 = 2 = ..... = n

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Inventory Mgmt.

Sum of random variables

Let D be the per unit demand with mean D and standard

deviation D . Let the demand be independent across periods.
Let LT be the constant Lead Time. Then, Lead Time Demand
has the following mean and standard deviation:

E (D1 + D2 + ...... + DLT ) = D + D + ..... + D = L D

std (D1 + D2 + ...... + DLT ) = 12 + 22 + ..... + 2LT = LT D

Distribution of Demand During Lead Time

LT : Lead Time
LT : Mean of Lead Time
LT : Standard Deviation of Lead Time
D : Demand per unit time
D : Mean Demand per unit time
D : Standard Deviation of per unit time Demand
DDLT : Demand during Lead Time
DDLT : Mean Demand during Lead Time
DDLT : Standard Deviation of Demand during Lead Time

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Inventory Mgmt.

Distribution of Demand During Lead Time

DDLT = D1 + D2 + D3 + .......DL , L is a random variable

From PS I: See Ross- Conditional
Variance Formula
DDLT = D LT

Var ( DDLT ) = E {Var ( DDLT LT = l )}+ Var{E ( DDLT LT = l}

= E(l D2 ) + Var(l D )
= LT D2 + D2 LT
2

DDLT = LT D2 + D2 LT
2