The Truncated Normal Distribution and the Safety Stock

The Truncated Normal Distribution and the Safety Stock Nick T. Thomopoulos Professor Emeritus Illinois Institute of Technology nthomop@gmail.com The truncated normal distribution is highly useful in inventory control, since... [ view full abstract ]

The Truncated Normal Distribution and the Safety Stock
Nick T. Thomopoulos
Professor Emeritus
Illinois Institute of Technology
nthomop@gmail.com

The truncated normal distribution is highly useful in inventory control, since it has many shapes and has a location parameter that is used to determine the shape and how much safety stock is needed for each item. The forecast for an item generates the average and standard deviation on the future demands. This information yields the coefficient of variation, cov, and this measure is used to determine the location parameter for the truncated normal distribution. The truncated normal gives a more precise measure of the safety stock than using only the normal distribution.