Exploring the Potential Use of the Birnbaum-Saunders Distribution in Inventory Management

Abstract

Choosing the suitable demand distribution during lead-time is an important issue in inventory models. Much research has explored the advantage of following a distributional assumption different from the normality. The Birnbaum-Saunders (BS) distribution is a probabilistic model that has its genesis in engineering but is also being widely applied to other fields including business, industry, and management. We conduct numeric experiments using the R statistical software to assess the adequacy of the BS distribution against the normal and gamma distributions in light of the traditional lot size-reorder point inventory model, known as (Q,r). The BS distribution is well-known to be robust to extreme values; indeed, results indicate that it is a more adequate assumption under higher values of the lead-time demand coefficient of variation, thus outperforming the gamma and the normal assumptions.