Assignment:
A retailer is considering two possible definitions of "in-stock": (I) a product is in-stock if it has at least one unit on-hand at the end of the day; (II) a product is in-stock if it has satisfied all demand during a day. For a given order upto level, which definition yields the higher in-stock probability?
- Definition I, because if one unit is on-hand, then all demand must have been satisfied.
- Definition II, because if all demand is satisfied, then there must be some inventory left over.
- Definition II, because the firm is more likely to satisfy all demand than to end the day with one unit on hand.
- Either one is possible, because it will depend on the particular order upto policy chosen, the distribution function of demand and the lead time.