Patent ID: 8600843

Claim:
A method of determining minimum (s) and maximum (S) inventory control levels (s, S) for inventory items based upon a demand history of the inventory items, comprising: using a computer to execute: generating histograms of demand inter-arrival times (IA) and demand requisition sizes (RS), based upon the demand history of the inventory items; generating, for a set of control levels (s, S), a probability distribution for a lead time demand (LTD) in future, based upon the IA and/or RS histograms, and a probability distribution for an inventory position (IP) based upon the RS histogram; generating a probability distribution of on-hand inventory of an inventory item, for a lead time in future, directly from frequency statistics of different demand IA and demand RS on an inventory item basis based upon the probability distribution for the LTD and the IP; computing a cost function for an expected instantaneous cost of a given IP of the inventory item, experienced for the lead time in future, based upon the probability distribution of the on-hand inventory of the inventory item; and searching for the control levels (s, S) of the inventory item using the cost function or the expected instantaneous cost of the current IP of the inventory item.