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Note 2.4 Renewal Processes

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In continuous review inventory control, it is only necessary to consider making replenishment decisions just after a demand has occurred. This is true for Poisson and Bernoulli processes, where the time between demands is exponentially and geometrically distributed, respectively, and hence the demand process is memoryless (see Chapter 4). However, for renewal demand processes, including Erlang arrival processes that are not memoryless, this is no longer true in general (see Chapter 5). Rather, for these processes the passage of time itself may carry information about the demand process. Thus, it may be optimal that a certain time span should trigger a replenishment order, even if a demand has not occurred. Therefore, an order may not only be triggered by a change in the inventory position (defined in the usual way). Heuristically, and for practical purposes, replenishment orders may, of course, be allowed only at the time instances just after a demand has occurred (or at predetermined time intervals, as in a periodic review system). This issue has implications for the kind of information that is useful for inventory control purposes but is not discussed further in this book.

Intermittent Demand Forecasting

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