Robustness of the normal approximation of lead-time demand in a distribution setting

John E. Tyworth, Liam O'Neill

Research output: Contribution to journalArticlepeer-review

63 Scopus citations

Abstract

Previous studies criticize the general use of the normal approximation of lead-time demand on the grounds that it can lead to serious errors in safety stock. We reexamine this issue for the distribution of fast-moving finished goods. We first determine the optimal reorder points and quantities by using the classical normal-approximation method and a theoretically correct procedure. We then evaluate the misspecification error of the normal approximation solution with respect to safety stock, logistics-system costs, total costs (logistics costs, including acquisition costs), and fill rates. The results provide evidence that the normal approximation is robust with respect to both cost and service for seven major industry groups.

Original languageEnglish
Pages (from-to)165-186
Number of pages22
JournalNaval Research Logistics
Volume44
Issue number2
DOIs
StatePublished - Mar 1997

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