On the empirical performance of (T, s, S) heuristics

The periodic (T,s,S)(T,s,S) policies have received considerable attention from the academic literature. Determination of the optimal parameters is computationally prohibitive, and a number of heuristic procedures have been put forward. However, these heuristics have never been compared in an extensive empirical study. Such an investigation on 3055 SKUs is carried out in this paper. Our study provides insights into the performance of (T,s,S)(T,s,S) heuristics, also in relation to demand forecasting. The results show that Naddor’s heuristic is best able to minimize the total cost. However, the normal and power approximations achieve more efficient solutions in that backorder volumes are smaller at the same inventory levels, indicating the potentially superior performance of these methods if the balancing of holding and backorder costs can be improved. The results also show that, for all heuristics, the SBA variant of the Croston forecasting method significantly outperforms Croston as well as Single Exponential Smoothing (SES).