Single server system with inventory and lost sales

2.1 Introduction
An M/M/1/ queue system with inventory (finite capacity) by assuming reorder
point .. and randomized order sizes which are restricted only by the finite capacity of
the inventory position has been analyzed. The steady state probabilities and some system
performance measures are calculated for this queueing model.
2.2 The model
An single server queue with infinite storage and inventory (finite capacity) has
been considered. In this model service system with an attached inventory
undistinguishable customers arrive one by one according to Poisson process with intensity
0 > and require service given by exponential distribution with mean 1 . Here service
times and inter arrival times are independent family of random variables.
There is a single server with unlimited waiting room under first come, first served
(FCFS) regime and any inventory with maximal capacity of M (identical) items. Each
customer needs exactly one item from the inventory for service, and the on-hand
inventory decreases by one at the moment of service completion.
If the server is ready to serve a customer which is at the head of the line and there
is no item of inventory this service starts only at the time instant (and then immediately)
when the next replenishment arrives at the inventory. Customers arriving during a period
when the server waits for the replenishment order are rejected and lost to the system (lost
sales).
A served customer departs from the system at once and associated item is
removed from the inventory at this time instant as well. If there is another customer in
the line and at least one further item in the inventory, the next service starts immediately.
There is a policy specified which determines at each decision point whether a
replenishment order is placed or not, and how many items are ordered. Admissible
decision epochs are arrival and departure epochs. We assume that there is always at most
one outstanding order.

The inventory is depleted after the service of a customer is completed; a
replenishment order is instantaneously triggered. The decision of the order size may be
randomized according to a discrete probability mass function p on the integers
{1,2,.M}, where M is the maximal capacity of the inventory. So the size of a
replenishment order is k with probability
k
p where

=
=
M
k
k
P
1
. 1 The corresponding discrete
distribution function will be denoted by
p
F and , 1
p
p F P = respectively. We abbreviate
the probability that the size of a replenishment order is at least k units by

=
=
M
k h
h k k
P q e i q . . . , The mean order size is

=
=
M
k
k
kp P
1
. The replenishment lead time is
exponentially distributed with parameter . 0 > u Order size decisions and lead times are
independent and independent of the arrival and service times.
There are costs connected with operating the system originating from both, the
queueing of the customers and from holding inventory at the system. We have a fixed
holding cost h per item and time unit in the inventory, a fixed ordering cost K for each
replenishment order, a shortage cost per unit of lost sales, a cost e per customer and
time unit in the waiting room, and a cost o per customer and time unit in service.
Whenever a customers service is completed, a revenue R is payed to the system.
Let X (t) denote the number of customers present at the server at time , 0 > t either
waiting or in service, and let Y (t) denote the on-hand inventory at time . 0 > t We de-
note the joint queue length and inventory process by ( ) ( ) ( ). 0 , ), ( > = t t Y t X Z The state
space of Z is ( ) { } { } M k N n k n E
Z
,..., 0 , : ,
0
e e = is state of the joint process z. Where M is
the maximal size of the inventory, We shall henceforth refer to Z as the queueing-
inventory process.
A service system with inventory according some prescribed policy, is called an
M/M/1/ system with inventory or with inventory management under that policy.


Theorem 2.2.1
For the M/M/1/ system with inventory the stochastic queueing- inventory
process Z is a homogeneous Markov process. Z is ergodic if and only if . < If Z is
ergodic then it has a unique limiting and stationary distribution of product form.
( )
k
n
q K k n
|
|
.
|

\
|
=

t
1
, with , 1 ,
0
M k N n s s e (2.2.1)
( )

t
n
K n
|
|
.
|

\
|
=
1
0 , with ,
0
N ne (2.2.2)
and with normalization constant
|
.
|

\
|
+

=
u

P K
Proof
For finite k the stationary measure t satisfies the global balance equations of z
for all :
0
N ne we have
( ) ( ) ( ) ( ) ( ) ( ), 1 , 1 0 , 1 ,
on M on
M n p n M n o t u t o t + = + (2.2.3)
( ) ( ) ( ) ( ) ( ) ( ) 1 , 0 , 1 ) , 1 ( 1 , 1 1 , > > + + + + = + k M p n k n k n k n
k on on
u t o t t o t (2.2.4)
( ) ( ) t u t 1 , 1 0 , + = n n
From (2.2.3)
( ) ( ) ( ) ( ) ( ) ( )
M on on
p n M n M n M n u t o t o t t 0 , 1 , 1 1 , , + = +
( ) ( )
M
p n M n u t t 0 , , =
( ) ( )
M
p n M n

u
t t 0 , , = (2.2.5)
( )
|
|
.
|

\
|
|
|
.
|

\
|
=

t
n
n 0 , [M/M/1 queue]
( )
M
n
p M n
|
|
.
|

\
|
|
|
.
|

\
|
=

u
t ,
Put K=M-1 in equation (2.2.4)
( ) ( ) ( ) ( ) ( )
on on
M n M n M n o t t o t = + 1 , 1 1 , 1 1 ,
( ) ( )
1
0 , ,

+ +
M
p n M n u t t
( ) ( ) ( )
1
0 , , 1 1 ,

+ + =
M
p n M n M n u t t t
( ) ( )
1
0 , 0 , 1

+ + =
M M
p n p n u t

u
t

1
1

+
|
|
.
|

\
|
|
|
.
|

\
|
+
|
|
.
|

\
|
|
|
.
|

\
|
=
M
n
M
n
p p u

| |
1
+
|
|
.
|

\
|
|
|
.
|

\
|
=
M M
n
p p u

| |
M
q M M
n
q q

+
|
|
.
|

\
|
|
|
.
|

\
|
=
1
u

( )
1
1 ,

|
|
.
|

\
|
|
|
.
|

\
|
=
M
n
q M n u

t
( ) ( )
1
0 , 1 ,

=
M
q n M n u t t
( ) ( )
M
q n M n 0 , , t

u
t =
( ) ( )
1
0 , 1 ,

=
M
q n M n t

u
t
( ) ( )
2
0 , 2 ,

=
M
q n M n t

u
t

( ) ( )
2
0 , 2 , q n n t

u
t =
( ) ( )
1
0 , 1 , q n n t

u
t =
Assume ( )
|
.
|

\
|
|
|
.
|

\
|
=
u

t
n
K
n
1
0 ,
( ) ( ) ( ) | | 1 , .... 1 , 0 ,
0
= + + +

= n
M n n n t t t
( ) ( ) ( ) ( )

=
=
(

+ + + +
0
2 1
1 0 , ... 0 , 0 , 0 ,
n
M
q n q n q n n t

u
t

u
t

u
t
( ) ( ) 1 ...... 1 0 ,
0
2 1
=
(

+ + +

= n
M
q q q n

u
t
1 ... 1
1
0 1 2
=
(

|
.
|

\
|
+ + + +
|
|
.
|

\
|
|
|
.
|

\
|

= = = = n
M
h
M
M h
h
M
h
h h
n
p p p
K
u

= =
=
(

+
|
|
.
|

\
|
0 1
1 1
1
n
M
k
k
n
Kp
K
u

1 1 1
1
1
=
(

+
|
|
.
|

\
|


P
K
u

u
u

+
|
|
.
|

\
|
=

P K
1
1

(

+
|
|
.
|

\
|

=
u

P K


In general,
( ) ( )
k
q n k n 0 , , t

u
t =

k
n
q K
|
.
|

\
|
|
.
|

\
|
=

u

u
1

( )
k
n
q K k n
|
|
.
|

\
|
=

t
1
,
Evaluating the normalization constant K yields the ergodicity criterion.
The Normalization constant K factorizes in the normalization constant for the
marginal queue length and for the inventory process as

Y X
K K P K =
|
.
|

\
|
+

=
u

Where
u

+ =

= p K K
Y X
,
Remark (2.2.2)
When = u the inventory replenished (supplied) instantaneously and inventory
Position zero is left immediately.
( )

= +

=
|
.
|

\
|
+

=
p
p p K 0
Corollary (2.2.3)
(a) The marginal steady state queue length distribution of ( ) ( ) 0 , > = t X X is equal
to the steady state queue length distribution in the classical / 1 / / M M
FCFS system with the same parameters and .
The mean number of customers in system

= o L
(b) The steady state on-hand inventory distribution of ( ) ( ) 0 , > = t t Y Y is
( ) k n K Y P
n
, ) (
0

=
= = t
( )

=
= =
0
0 , ) 0 (
n
n Y P

|
.
|

\
|
|
|
.
|

\
|
=
0
1
n
n
K
u

|
|
.
|

\
|
=

n
K

1


|
.
|

\
|
+
|
.
|

\
|
|
|
.
|

\
|

=

u

p
1

=
|
|
.
|

\
|
=

=
n
n 0

Remark (2.2.4)
From corollary (2.2.3) (b) we have
For M k s s 1
{ }
{ }
| |
{ }
( ) ( ) ( ) n Y P Y P Y P
k Y P
Y P
Y k Y P
Y K Y P
= + = + =
=
=
>
> =
= > =
... 2 1 0
0 ,
0 /

=
=
+ + +
=
M
k
M
k
q
q
q q q
q
1
1
2 1
...
i

= =
=
= =
M
h
h
M
l
k
M
l
M
h
h
M
k h
h
p p
q p
p
p
1
1
1
1
1 1

{ }

= =

= > =
M
l
M
h
h
M
k h
h
p p
p p
Y k Y P
1 1
1
1
0 /

Measure of system performance
Stationary is always assumed in the classical inventory theory as well
I = Average inventory position ( )


= =
=
0 1
,
h
M
k
k n k t
=
R
Expected reorder rate
= Ls Expected lost sales per unit time | | 0 = = Y
p

[ = Y steady state, on hand inventory]
= C Ls Expected lost sales per cycle
R
Ls

1
=
(
R

1
is mean time of cycle)
One cycle = time between two successive orders.
(or)
Receipt of two successive procurements with respect to the mean cycle time.
= w Average waiting time for a customers.
All performance measure depends on P and not on the whole distribution.
Expect stationary mean inventory position( ) I .
I is depends on second order moments of
p
F
( )

=

= =

= =
M
k n
M
k
k Y
q kK k n k I
1 0 1
1
, t

=
M
k
k Y
kq K
1
1

{ }
M Y
mq q q K + + + =

... 2 1
2 1
1

( ) ( ) ( ) { }
M Y
p p M p p p K ... ... 2 1
1 2 1 1
1
+ + + + + =


( ) ( ) ( ) ( ) { } M p p p p K
M Y
+ + + + + + + + + + =

... 2 1 ... 3 2 1 2 1 1
3 2 1
1

( )
)
`

+ + + =

=

M
k
k Y
p M K
1
1
... 2 1
( )
k
M
k
Y
p
k k
K I

=

+
=
1
1
2
1

=
R
Expected number of replenishment per time unit
(reorder rate)
u

+
=
P

The above for of
R
reveals that

R
in the system with Mean number of replenishment
Explicit incorporation order given by Hadley and whitin
Of service and queueing [11] on page 180 in 4-37 and by
Behavior Hax and candea [12] in (41.88) for
The case of no queueing (i.e) service
time. = 0
Here, mean number of replenishment per unit home in the stationary system is
independent of service intensity as long as it is greater then overall arrival rate . (The
same observation holds for reciprocal value, mean time between two replenishment
order
u
1
+
p
).
| | = = = 0 Y P Ls (Mean arrival rate P[on-hand inventory zero on steady state].

u

+
=
p
Ls

u

=
+

+
=
+
+

= =
p
p
P
p Ls
Ls
R
C
2

Inventory can be divided into working stock and safety stock.
Working Stock
It is inventory acquired and held in advance of requirements so that the expected
demand can be satisfied and ordering can be done on a lot size rather them on an as
needed basis. Lot size is done in order to minimize ordering and holding costs.
Safety Stock
It is held in reserve to project against the uncertainties of supply and demand.
(Tersine [22] p.205).
Definition
The safety stock is the Palm stationary mean value.
s=E (net inventory position just before the arrival of a replenishment order).
Where,
Y
net
= net inventory position as the inventory on the hand.
Y
net
= Y
Usual definicon of Y
net
= (on-hand inventory) (back order)
Service levels are defined for the average replenishment cycle (or) one time unit.
Customers are interested in quality of service and have minor interest on length of
order cycle.


Definition
P =
1
o (net inventory position at the end of a cycle > 0).
P =
2
o (net inventory position at the end of a unit of time > 0).
E (demand satisfied per cycle)
E (total demand satisfied per cycle)
E (demand satisfied per unit of time)
E (total demand per unit of time)
Justified for all regenerative processes and therefore is here a conclusion of the
ergodicity of Z.
o Service levels are event-oriented performance measure, only value occurrence
and not the magnitude of shortage. ( o service levels depends on choosing time).
2 o Service level is just the time stationary probability of a non-negative net
inventory position.
| Service levels are quantity oriented service measures describing the
proportion of demands that are met from stock without accounting for the duration of a
stockout.
| Service levels used in [21]
P =
1
o [net inventory position at the end of cycle > 0]
P =
1
o [Y
net
per cycle > 0] = P[Y per cycle > 0]
Since always (According to definition of Y
net
) (Y= on- hand inventory at the end
of cycle)
Y
net
= Y=0, when an orders arrives
Y
n+1
> 0 is impossible event
0
1
= o
= |
= |
Note
If we use the definition from [15]
P =
1
o (Y net at the end of cycle 0 > )
1
1
= o [for the above same reason][Y
net
cannot become negative]
This is same for any M/M/1/-system with inventory with management and lost
sales
| | 0
2
> = Y P o
For | service level we compute
E[Satisfied demand per unit of time
E[total demand per unit of time

u

+
=
|
|
.
|

\
|
+

=
p
p
1
2


C Ls p
p
p
p
p
p
+
=
+
=
+
+
=
u

u
u

(i.e)

u

|
+
=
+
=
p Ls p
p
C
1
But W.K.T
| | , 0
1
u

=
+
= =
Y
K
p
Y P where

2
o | = if Y
net
=Y
Since the proportion of demand which is lost in just controlled by Y=0. Normally,
o and | service levels are not in a universally valid proportion to each other.

Ls
= = |

Since | |
u

u u

+
=
+
= =
p
p
Y P
1
0
| |
R
Y P
u
1
0 = =
| | 0 = = Y p
R
u

1
2
o
o
u =
R


2 1
o u o =
R

But in classical inventory management literature relation between
1
o and
2
o is
given by

2 1
o u o =
R

From Corollary (2.2.3) (a)
As can be found in theorem A.1 appendix A.
=
A
Mean number of customer arriving per unit time

|
|
.
|

\
|
+
= =
u
u

p
p p
R A


u
u

+
=
p
p
A

Note
For the through put of the system, the following relation holds.
( ) Ls Y P
A
= > = 0

Using Littles formula customers mean sojourn time
( ) u
u

+
= = =
p
p L
w
A
0
0

( ) u


+

=
p
w
1
0

( )

=
2
L
Customer mean waiting time
( )
( ) u
u

+
= = =
p
p L
w
A


( ) ( ) u

=
p
w
2

Remark (2.2.5)
1.
|
|
|
|
.
|

\
|
=
+
=
+
+
= =

u
u

0 1
1
lim lim
p
p
p
p
p p
A A

2. ( )
p
p p p
R

= + =
|
.
|

\
|
+ =

1
1
lim
0
Remark (2.2.6)
0 w and w depends on the service rate .
Some performance measures are not dependent on and u individually, but
only on their proportion
u

.
e.g.
1.
u

= C Ls
2.
C Ls p
p
p
p
+
=
+
=
u

|
3. ( )

=
+ =
M
k
k
p k K I
1
1
2
1

Several performance measures only depend on the first moment of
p
F .
1.
u

u
u

+
=
+
=
p
p
R

2.
|
.
|

\
|
+

|
.
|

\
|
=
+
=
u

p
p
Ls
2

3.
|
.
|

\
|
+
=
u

|
p
p

4.
( ) ( )
( )
( ) u
u
u

+
=

=
p
p
p
w
2

This are completely independent of
p
F like C Ls and
1
o
I depends on first and second moment of
p
F .
Examples for specific order size distribution
If the replenishment order size is fixed, which yields on (0,Q) policy if the
replenishment order size is uniformly distribution on {1,2,3Q}, in both cases M=Q
limits deterministic order size. Assume that order size is fixed and equal to N Qe .
p
k
=p
r
{replenishment order size is k}
1ift = Q
0ift = Q,k=1,2,M
qk k
q o = for all k { } M ,... 2 , 1 e
q
k
=p
r
{replenishment order size is at least k}
M Q k k
M
n h
n k
p p p p p q + + + + + = =
+
=

... ...
1

=
= 0+0++1++0
=
k
q 1 for all k { } Q ,... 2 , 1 e
For k > Q

+ =
+ +
+ + + = + + + = =
M
Q n
M Q Q n k
p p p p q
1
2 1
0 ... 0 0 ...
0 =
k
q (for k > Q)
Mean order size

=
=
M
k
k
Kp p
1

=
=
M
k
kQ
k
1
.o

K M Q Q Q
M
, 2 2 1
... 2 ... 2 1 o o o o + + + + =
0 . ... 1 . ... 0 . 2 0 . 1 M Q + + + + + =
Q p =
Normalization constant
|
.
|

\
|
+

=
|
.
|

\
|
+

=
u

Q p K

w.k.T
P(Y=k) =

s s
=

m k for q K
fork K
k Y
Y
1 ,
0 ,
1
1
u

[Y= steady state on hand inventory size]

Here
P(Y=k) =

s s
|
.
|

\
|
+
=
|
.
|

\
|
+

m k f or q p
f ork p
k
1 ,
0 ,
1
1
u

( ) Q P =
P(Y=k) =

=
|
.
|

\
|
+
=
|
.
|

\
|
+

Q f ork q Q
f ork Q
,... 1 ,
0 ,
1
1
u

P(Y=k) =

=
|
.
|

\
|
+
=
|
.
|

\
|
+

Q f ork Q
f ork Q
... 2 , 1 ,
0 ,
1
1
u

Note
As is Berman and Sapnas, paper [4] (with backordering) the steady state
probabilities for the on hand inventory to be 0 > k are equally distributed according to
| | Q k Q k Y P s s
|
.
|

\
|
+ = =

1 ,
1
u

In contrast to their result
r
p [replenishment order is outstanding] | |
1
0

|
.
|

\
|
+ = = =
u

Q Y P
Uniformly distributed order size
Assume size of replenishment order is equally distributed on {1,Q}
(i.e.)
Size of replenishment order is uniformly distributed order {1,2Q}
P
k
=
{ }
{ }

e
e
Q k V
Q k V
Q
,... 1 , , 0
,... 1 , ,
1

=
+ + + + + = =
M
k
M Q k
Mp Qp p p Kp P
1
2 1
... ... 2 1
( )
Q
Q
1
... 2 1 + + + =

2
1 +
=
Q
P

=
+
+ + + = =
Q
k n
Q k k n k
p p p p q ...
1


Q Q Q
1
...
1 1
+ + + =
( )times k Q 1

Q
k Q
Q
k Q
q
k
+
=
+
=
1 1

Normalization constant

|
|
.
|

\
|
+
+

=
|
.
|

\
|
+

=
u

Q
Q
p K
1

1.
p
F Deterministic

+ =
M
k
Y k
K p k K I
1
1
) 1 (
2
1

( )

=
|
|
|
|
.
|

\
|
|
.
|

\
|
+
+ =
M
k
Q K
p
k K
1
,
1
1
2
1
u

o
( ) ( ) ( )
|
|
|
|
.
|

\
|
+
+ + + + + + + =
+
u

o o o o
Q
m m Q Q
Q m Q Q Q Q
1
1 ... 1 ... 3 . 2 2 . 1
2
1
, 1 , 2 1

( ) ( )
u

+
+ =
Q
Q Q
1
1
2
1


2
1 +

+
=
Q
Q
Q
I
u

( )
k
M
k
Y
p k K
K
I 1
2
1
1
+ =

=

( )

=
+
|
.
|

\
|
+
=
Q
k
Q
k K
Q
1
1
1
2
1
u

( ) | | 1 ... ... 2 . 1
2
1
+ + + +
|
.
|

\
|
+
= Q Q
Q Q
u

2.For Deterministic

Y
R
K

=
|
|
.
|

\
|
=
|
.
|

\
|
+ = Q p p K
Y
u

+
=
Q
R

For uniformly distributed
Y
R
K

=
|
.
|

\
|
+
+

=
u

2
1 Q
K
Y X
K K K =

u

+
+
=
2
1 Q
R


( ) 1
2
+ +
=
Q Q
R
u
u

3.For Determinist
| |
1
0

|
.
|

\
|
+ = = =
u

Q Y P Ls

( ) u

+
=
Q
Ls
2

For uniformly distributed
| |
|
.
|

\
|
= =

u

1
0
Y
K Y P
| |
u

1
0

= = =
Y
K Y P Ls

( ) u

u

u

2 1
2
1
2 2 2
+ +
=
|
.
|

\
|
+
+
= =
Q Q K
Y


( ) 1 2
2
2
+ +
=
Q
Ls
u


4.For Deterministic

( )
( ) u u

u

+
+
=
Q
Q
LsC
2

Uniform distribution

( )
( ) u

u u
u

=
+ +
+ +
= =
1 2 / 2
1 2 / 2
2
Q
Q Ls
Ls
R
C

5.For Deterministic

|
Ls
=

u
u
u

+
=
+
=
|
|
.
|

\
|
+

=
Q
Q
Q
Q
1
2


u

|
+
=
Q
Q

For uniformly distributed

( )

|
1 2
2
2
+ +

=
Q Ls


( )
( )
( ) 1 2
2 1 2
1 2
2
1
+ +
+ +
=
+ +
=
Q
Q
Q u
u
u



( )
( ) 1 2
1
+ +
+
=
Q
Q
u
u
|
6.For Deterministic

( )
( )
Q p
p
p L
w
A
=

+
= =
u
u

( )
( ) u
u

+
=
Q
Q
w
For uniform distribution

( )
( ) 2
1
,
+
=

+
= =
Q
p
p
p L
w
A
u
u

( )
( )
( ) | |
( ) u
u
u

+ +
=

|
.
|

\
|
+
+
=
p
Q
p
Q
2
2 1 2
1


( ) | |
( ) ( ) u
u
+
+ +
=
1
2 1
Q
Q
w
Ordering result
Consider two single server systems as in Def (2.2) which differ only in their
probability distribution function
p
F and
p
F for the size of replenishment order.
The mean order size p in two systems assumed to be same.
X X , Random variables distributed like stationary queue length.
Y Y, Random variables distributed like stationary inventory.
Def : For given random variable X,Y we define the orders relation.
1. , Y X
st
s if Ef(X) sEf(Y) for all increase for f.
2. , Y X
CQ
s if Ef(X) sEf(Y) for all convex for f.
3. , Y X
icx
s if Ef(X) sEf(Y) for all increase convex f.
4. , Y X
icu
s if Ef(X) sEf(Y) for all increase convex f.
The ordering

st
s is called usual stochastic ordering (or) first order stochastic dominance (FSD).
In financial setting it means that any rational decision maker having a utility in the sense
of non New Mann more genstemn.
Theorem (2.2.7)
If
p
cx p
F F < then (X,Y)
st
< ( ) Y X,
Proof since
p
cx p
F F <
(By conditions (3) of theorem A in (19) sec 13P.11)

=
s
k h k h
p p k F k F ) ( ) ( for N k e

=
s
k h k h
k k
q q , N k e
| | | |,

=
= s =
k h k h
k Y P k Y P
u u
N k e and k=0
| | | | k Y P k Y P > s > hold for all , N k e k=0
Y Y
st
s .
Steady state probabilities are in product form and u & , are the same in both
system.
The result follows
| | | | Y n X P k Y n X P , , = s > =
Hence ( ) ( ) Y X Y X
st
, , s
Remark (2.2.8)
The convex ordering of two distribution function
p
F and
p
F with finite and equal
first order moments (mean) can be ascertained using the Karlin Novikoff cut criterion.
[Example [19] sec 1.3 theorem E,P.17]
For two distribution
p
p
F F &
( ) ( ), k F k F
p
p
s for c s k
( ) ( ), k F k F
p
p
> for c > k for same + eR c
Then
p
cx p
F F s
Example (2.2.7)
Let p ~
Q
o
(i.e)

=
=
= =
k Q
k Q
P
KQ k
, 0
, 1
o
Then ( )

=
=
k h
k p
p k F
( )

>
<
= + + + =
+
Q ifk
Q ifk
p p
k k
, 1
, 0
...
1


M Q
M
k
k
Mp Qp p p p P + + + + + = =

=
... ... 2 . 1
2
1
1


Q
Qp P =
Q P =
Hence the Karlin Novikoff cut criterion can be applied for comparison with all other
distribution function
p
F with mean Q.
Example
p~ p
cx Q
~
2
1
<
+
o ~ unit { } ( ) Q ,.... 2 , 1
Corollary (2.2.9)
If the mean replenishment size is prescribed the stationary mean inventory
position I is minimal for the system with fixed order size.
Proof
Consider two system with different probability functions p p
~
& with p~
Q
o and
Q p E =
~
.
Then p p
cx
~
<
Y and Y
~
denotes the random variables distributed like stationary inventory
distribution of two systems.
If
p
cx p
F F < then ( ) ( ) Y X Y X
st
, , s
| | | | k Y P k Y P Y Y
st
> s > s for N k e , Q, k>0
| | | |

e e
> s >
N k N k
k p p k Y p
I I
~
s
Summary
We have found out that all performance measures except the mean inventory
position I are the same for two systems with different order size distribution function
p
p
F F & but have mean p .
I is minimal for fixed order size system.
This is why all other systems can be excluded from further consideration when it
comes to an optimization of the costs associated to / 1 / / M M systems with inventory
managements and reorder point 0.
For this reason we will now investigate early replenishment systems with reorder
point 0 > r and fixed order size Q.
This yields the well-known (r,Q)-system from inventory management theory.




3 / 1 / / M M system with (r,Q)-policy
We consider / 1 / / M M system with inventory management policy that
corresponds to the lost sales version of continuous review, order point, order-quantity
model [(r,Q) model].
Where a fixed order quantity Q is ordered each time on-hand inventory reaches
the reorder point 0 > r .
(r,Q) policy is applicable if units are demanded one at a time and if transaction
reporting is used.
We assume throughout the paper Q r < . (This avoids degenerate cycles in which
no demand occurs).
Definition (3.1)
We have single server, infinite waiting rooms FCFS basis, attached inventory of
capacity M, as defined in Definition (1) and with the assumptions on stochastic behavior
of the system from Definition (2).
If the on-hand inventory reaches a prespecified value , 0 > r a replenishment order
is instantaneously triggered.
The size of the replenishment order is fixed < Q units,
As r < Q some fix M = r+Q.
The replenishment lead time is exponentially distributed with parameter 0 > u .
Arriving customers are lost during the time inventory is zero.
X(t) = number of customers present at server at time , 0 > t either waiting or in
service
Y(t) = on-hand inventory at time 0 > t .
Z = ((X(t), Y(t)), ) 0 > t is a continuous-time
Markov process for the / 1 / / M M system in (r,Q)-policy.
State space
( ) { } r Q k N n k n E
Z
+ s s e = 0 , / ,
0

Suppose if = u , then early replenishment of inventory with r>0 does not make
sense with respect to economic aspects.
Since r units are never touched by the customers and remain in stock for ever.


Theorem (3.2)
The continuous-time markov process Z f is ergodic if and only if < and
< u . If Z is ergodic then it has a unique limiting and stationary distribution of product
form given by
( ) ( ) , ,
1
n
k C K k n
|
|
.
|

\
|

t for ,
0
N ne r Q k + s s 1 (1)
( ) , 0 ,
1
n
K n
|
|
.
|

\
|
=

t for
0
N ne (2)
With
( ) ,
1
|
.
|

\
| +
=
k
k C

u
r k ,... 1 =
( ) ,
r
k C
|
.
|

\
| +
=

u
Q r k ,..., 1 + =
( ) ,
1
|
.
|

\
| +

|
.
|

\
| +
= +
k r
K Q C

u
r k ,..., 1 =
The normalization constant is
|
|
.
|

\
|
+
|
.
|

\
| +

=
u

r
Q K
Proof
The process Z from Def (3.1) possesses the following global balance equation.
( ) ( )
{ }
( )
r k n
k n
s
+ + 1 1 ,
0
u o t
( ) ( ) ( ) ( )
k r Q n
k n k n
, 0
1 1 , 1 1 , 1
+
+ + + = o t o t
( )
{ }
, 1 ,
Q k
Q k n
>
+ u t , 1 r Q k + s s (3)
( ) ( ) t u t 1 . 1 0 , + = n n for
0
N ne (4)
We will show that the distribution from (1) and (2) satisfies (3) and (4). Equation
(4) is satisfied since C(1) =1.
In Equation (3) the term ( ) ( )
n
k n
0
1 , o t at the left hand cancels against the term
( ) ( )
n
k n
0
1 , 1 o t at the right side for all ,
0
N ne r Q k + s s 1 .
It remains to prove that the term on the left side.
( )
{ }
( ) ( )
{ }
( )
r k
n
r k
k C K k n
s

s
+
|
|
.
|

\
|
= + 1 1 ,
1
u

u t
Equals the remaining terms at the right side
( ) ( ) ( )
{ } Q k k r Q
Q k n k n
> +
+ + + 1 , 1 1 , 1
,
u t o t
( )( )
{ } Q k
n
k r Q
n
K k C K
=

|
|
.
|

\
|
+ +
|
|
.
|

\
|
= 1 1 1
1
,
1

( )
{ } Q k
n
Q k C K
>

|
|
.
|

\
|
+ 1
1
u

For all
0
N ne and r Q k + s s 1 .
Hence we have to show that for all r Q k + s s 1
w.k.T
( )
{ }
( ) ( ) ( ) ( )
{ } Q k k r Q r k
Q k n k n k n
> + s
+ + + = + 1 , 1 1 , 1 1 ,
,
u t o t u t

{ }
( )
{ } Q k
n
Q k
n
Q k C K K
>

|
|
.
|

\
|
+
|
|
.
|

\
|
+ 1 . 1
1 1
u

( )
{ }
( ) ( )( )
{ }
( )
{ } Q k Q k k r Q r k
Q k C k C k C
> = + s
+ + + = + 1 . 1 1 1 1
,
u o u
( )( ) ( )
{ }
( )
{ }
( )
{ } Q k Q k r k k r Q
Q k C k C k C
> = s +
+ = + 1 . 1 1 1 1
,
u u o
( )( ) ( )
{ }
|
.
|

\
|
+ = +
> + Q k k r Q
k C k C 1 1 1 1
,

u
o ( ) -
For k = 1,2,r. (Q > r)
( ) ( )( ) ( ) ( ) 0 . 0 1 1 0 1 1 Q k k C k C
|
.
|

\
|
+ = + -

u

( ) ( )
|
.
|

\
|
+ = +

u
1 1 k C k C (1)
For k = r+1,Q-1
( ) ( )( ) ( ) ( ) 0 0 0 1 0 1 1
|
.
|

\
|
+ = + - Q k k C k C

u

( ) ( ) k C k C = +1 (2)
For K = Q
( )( ) ( ) ( )( ) 0 0 1 0 1 0 1

u

|
.
|

\
|
+ = + Q C r Q C
( ) ( ) 1 = + Q C r Q C (3)
For K = Q+1,Q + r-1
( )( ) ( ) ( ) 1 . 0 0 1 0 1 1 Q k C k C Q C
|
.
|

\
|
+ = +

u

( ) ( ) ( ) Q k C k C k C = +

u
1 (4)
For K = Q+r
( )( ) ( ) ( ) 1 . 0 0 1 1 1 1 Q r Q C r Q C k C +
|
.
|

\
|
+ + = +

u

( ) ( ) r C r Q C

u
+ = 0 (5)
( ) ( ) r C r Q C

u
= +
( ) ( ) k C k Q C

u
= + (6)
( ) ( ) ( )
|
.
|

\
|
+ = +

u
1 1 1 k C k C
( ) ( ) 2 1 1 1
3 2

|
.
|

\
|
+ =
|
.
|

\
|
+ = k C k C

u

( ) ( ) 1 1
|
.
|

\
|
+ = k k C
k

u

( ) 1 1 = C
( ) , 1 1
k
k C
|
.
|

\
|
+ = +

u
for k=1,r
W.K.T
( ) ( ) 1 1 1 0 1 1
0
=
|
.
|

\
|
+ = + =

u
C
( ) , 1
1
|
.
|

\
|
+ =
k
k C

u
k=1,2,r
( )
r
r C
|
.
|

\
|
+ = +

u
1 1
( ) ( ) ( ), 1 2 k C k C = + 1 ,... 2 , 1 , 1 + + = Q r r k
( ) ( ) ( ) ( ) ( ) ( ) 1 ,... 2 3 , 1 2 = + = + + = + Q C Q C r C r C r C r C
But
( )
r
r C
|
.
|

\
|
+ = +

u
1 1
( ) , 1
r
k C
|
.
|

\
|
+ =

u
for Q r r k ,... 2 , 1 + + =
( ) ( ) ( )
1 1
1 1 1 1 1 1 3

|
.
|

\
|
+
|
.
|

\
|
+ =
|
.
|

\
|
+ = = +

u
r r
Q C Q C
( ) ( ) ( ) ( ) Q Q C Q C Q C + + = + 1 1 2 4

u

( ) ( ) ( )

u

u
+ = + = 1 1 1 Q C C Q C

1 1
1 1 1 1 1 1

|
.
|

\
|
+
|
.
|

\
|
+ =
|
.
|

\
|
+
|
.
|

\
|
+ =
|
.
|

\
|
+ =
Q r r r

u

( ) ( ) ( ) ( ) ( ) 2 2 2 2 3

u
+ = + + = + Q C Q Q C Q C Q C

|
.
|

\
| +

|
.
|

\
|
+
|
.
|

\
|
+ =

u
1
1 1
r


2
2
1 1

u

|
.
|

\
|
+ =
r


|
|
.
|

\
|
+ +
|
.
|

\
|
+ =
2
2
2
1 1

u
r


2
1 1
|
.
|

\
|
+
|
.
|

\
|
+ =

u
r

( )
3
1 1 3 2
|
.
|

\
|
+
|
.
|

\
|
+ = +

u
r
C
( ) ( ) ( ) ( ) Q Q C Q C Q C + + = + 3 3 4 5

u


2 2
1 1
|
.
|

\
| +

|
.
|

\
|
+
|
.
|

\
|
+ =

u
r


2 2
1
|
.
|

\
| +

|
.
|

\
| +

|
.
|

\
|
+ =

u
r


2
1 1
|
.
|

\
| +
|
.
|

\
|
+
|
.
|

\
|
+ =

u
r


3
1
|
.
|

\
| +

|
.
|

\
|
+ =

u
r

( )
3
1 1 4
|
.
|

\
|
+
|
.
|

\
|
+ = +

u
r
Q C
( ) ( ) ( ) ( ) Q r r Q C r Q C r Q C + + = +

u
2 1 4

3 3
1 1 1

|
.
|

\
|
+
|
.
|

\
|
+
|
.
|

\
|
+ =
r r r

u


|
.
|

\
|
+
|
.
|

\
|
+
|
.
|

\
|
+ =

u
1 1 1
3 r r

( )
2
1 1 1

|
.
|

\
|
+
|
.
|

\
|
+ = +
r r
r Q C

u

( ) ( ) ( ) r C r Q C

u
+ = + 6

r r r
|
.
|

\
| +
|
.
|

\
| +
|
.
|

\
|
=
|
.
|

\
| +
+ =

u
1


(
(

|
.
|

\
| +
+
|
.
|

\
| +
=
1

u
r


(

|
.
|

\
|
+
+
|
.
|

\
| +
=
u

u
r


(

+
+
|
.
|

\
| +
=
t
u

u
r


(

|
.
|

\
| +
=
u

u
1
r


r r
|
.
|

\
| +
+
|
.
|

\
|
+
|
.
|

\
| +
=

u
u

u

( )
r r
r Q C
|
.
|

\
| +
+
|
.
|

\
| +
= +

u
1

( ) ( ) ( ) ( ) Q r Q C r Q C r Q C + + = + + 1 1 1 1 4

u

( ) 1
|
.
|

\
| +

|
.
|

\
| +
=

r C
R r r

u


2
|
.
|

\
| +

|
.
|

\
| +

|
.
|

\
| +
=
r R r r

u


|
.
|

\
|
+
|
.
|

\
| +

|
.
|

\
| +
=

u
1
2 r r

( )
1
|
.
|

\
| +

|
.
|

\
| +
= +
r r
r Q C

u

( ) ,
1
|
.
|

\
| +

|
.
|

\
| +
= +
k r
k Q C

u
r k ,... 2 , 1 =
( ) ( ) ( )

=
+
=

=

|
|
.
|

\
|
+
|
|
.
|

\
|
= +
0 1 0
1 1
0 , ,
n
r Q
k n
n n
K k C K n k n

t t
( )

|
|
.
|

\
|
+
|
|
.
|

\
|
=

=
+

0 1 0
1
1
n
r Q
n n
k C K

( )

+
|
|
.
|

\
|
+
|
|
.
|

\
|
=
0
1
1
1

Q
n
k C K
( ) ( ) ( ) ( ) ( ) ( ) ( ) { }
1 1
1 ... 1 ... 1 ... 2 1 1

|
|
.
|

\
|
+ + + + + + + + + +
|
|
.
|

\
|
=

r Q C Q C Q C r C r C C C K

|
.
|

\
| +
+ +
|
.
|

\
| +
|
.
|

\
| +
+ +
|
.
|

\
| +
+
|
.
|

\
| +
|
|
.
|

\
|
=

r r r
K

... ...
1 1 0
1

....
1 0
+
(
(

|
.
|

\
| +

|
.
|

\
| +
+
(
(

|
.
|

\
| +

|
.
|

\
| +
+

u
r r


1
1
1 .

|
|
.
|

\
|
+
(
(

|
.
|

\
| +

|
.
|

\
| +

u
r r

+
|
.
|

\
| +
|
|
.
|

\
|

=
u

u


r
Q
(
(

+
|
.
|

\
| +

=
u

r
Q K
Note

Y X
r
K K Q K =
(
(

+
|
.
|

\
| +
|
|
.
|

\
|

=
u

=
X
K
u

u
+
|
.
|

\
| +
=
r
Y
Q K
The steady state queue lengthy of X = ( ) ( ) 0 , > t t X is distributed like the steady
state queue length in classical / 1 / / M M FCFS with same parameter and .
Remark
Buchanan and Love [8] investigate an (r,Q) inventory system with lost sales and
Erlang-distributed lead times, where customer demands are satisfied without any loss of
time. Their result for the special case of exponential distributed lead times coincides with
the marginal distribution of the inventory process of our system.
Theorem 3.4 (Measures of system performance)
The measures of system performance as defined in Section 2.1 of the / 1 / / M M
system with (r.Q) policy according to Def (3.1) are given by

|
|
.
|

\
|
+
+
|
.
|

\
|
+
+
= s
Q
Q
Q
Q
I
r
1
u

r
R
Q
|
.
|

\
|
+
+
=
u

r
A
Q
Q
|
.
|

\
|
+
+
=
u

r
r
Q
Ls
|
.
|

\
|
+
+
|
.
|

\
|
+
=
u

u

u

u

r
C Ls
|
.
|

\
|
+
=
u

|
|
.
|

\
|
|
.
|

\
|
+
=
r
r s
u

u

1

r
|
.
|

\
|
+
=
u

o 1
1


r
Q
Q
|
.
|

\
|
+
+
= =
u

| o
2


u

|
.
|

\
|
+
+

=
1 1
0
r
Q
W

( ) ( )

u

|
.
|

\
|
+
+

=
r
Q
W
Proof
( ) ( )


=

+ +
=
|
|
.
|

\
|
= =
0 1
1
1
1 1
,
n n
n
Q r Q
k
k C K K k n K I

t
( )

+
=

|
|
.
|

\
|
=
r Q
n
n
k KC K
1 0
1

( )

|
|
.
|

\
|
=
r Q
k KC K
1
1
1
1

( )

|
|
.
|

\
|

(
(

+
|
.
|

\
| +
|
|
.
|

\
|

=
r Q
r
k KC Q I
1
1
1

(1)
Now
( ) ( ) ( ) ( ) ( ) 1 ... 2 2 1 1
1
+ + + + + =

+
r r rC C C k C K
r Q

( ) ( ) ( )( ) r Q r Q Q QC r C + + + + + + ... ... 1
+
|
.
|

\
| +
+ +
|
.
|

\
| +
+
|
.
|

\
| +
+
|
.
|

\
| +
=
1 2 1 0
... 3 2 . 1
r
r

u

( ) ( ) +
|
.
|

\
| +
+ +
|
.
|

\
| +
+ +
|
.
|

\
| +
+

u
Q r r
r r
... 2 1
( ) ( ) + +
(
(

|
.
|

\
| +

|
.
|

\
| +
+ +
(
(

|
.
|

\
| +

|
.
|

\
| +
+ ... 2 1
1 0

u
r r
Q Q
( )
(
(

|
.
|

\
| +

|
.
|

\
| +
+
1 r r
r Q

u

( ) ( ) { }+ + + + + + + + + + +
|
.
|

\
| +
= r Q Q Q r r
r
... 1 ... 2 1

|
.
|

\
| +
+ +
|
.
|

\
| +
r
Q
u
u

u
...
0

( ) { }

|
.
|

\
| +

+ + + +
|
.
|

\
| +
=

u
1
1
... 2 1
r
r
Q Q Qr

( )

|
.
|

\
|

|
.
|

\
| +

)
`

+
+
|
.
|

\
| +
=

u
r
r
Q
Q Q
Qr
1
2
1


( )

|
.
|

\
| +
+
)
`

+
+
|
.
|

\
| +
=
r r
Q
Q Q
Qr

u
u

u
1
2
1

|
.
|

\
| +
+
|
.
|

\
| + +
+
|
.
|

\
| +
=
r r r
Q
r Q

u
u

u
2
1
(2)
Sub (2) in (1)

+
|
.
|

\
| +
|
.
|

\
| +
+
|
.
|

\
| + +
+
|
.
|

\
| +
=
u

u

u
u

u
r
r r
Q
Q
r
Q I
2
1


(
(

|
.
|

\
|
+
+
|
.
|

\
| +
|
.
|

\
| +

|
.
|

\
|
+
+
+
+
=
r r
r r
Q
Q
r Q
u

u

u
u

2
1


r
r
Q
Q
r Q
I
|
.
|

\
|
+
+
(
(

|
.
|

\
|
+
+
+
+
=
u

2
1


r
r
r s
Q
s
Q
Q
I
|
.
|

\
|
+
+ =
|
.
|

\
|
+
+
(

+
+
=
u

,
2
1

| | ( )

= = =
0
0 , 0 n Y P Ls t

|
|
.
|

\
|
=
|
.
|

\
|
=
0 0
2
1
n
n
K
K

1
2
1

|
|
.
|

\
|

(
(

+
|
.
|

\
| +
|
|
.
|

\
|

r
Q


1
2

|
|
.
|

\
|

(
(

+
|
.
|

\
| +
=

u
u

r
Q


(
(

|
.
|

\
|
+
+
|
.
|

\
| +
=
r r
Q
u

u
u

2


(
(

|
.
|

\
|
+
+
|
.
|

\
|
+
=
r
r
Q
Ls
u

(
(

|
.
|

\
|
+
+
(
(

|
.
|

\
|
+
+
|
.
|

\
|
+
= =
r
r
r
R
C
Q
Q
Ls
Ls
u

r
C Ls
|
.
|

\
|
+
=
u

W.K.T
( ) ( ) ( ), , ,
0
0
h n k n z P
R
NR
t

u
= = for , 0 r h s s
0
N ne
Safety stock (or)
Expected in net inventory ) (
0
1
K Y P K s
net N
k
R
= = =

>

Position just before a replenishment
Orders amines