Chapter 2 Type of Demand
As shown in Chapter 1, the first step to select a inventory control model is defining the type of demand for the data to analyze. In this book, there are only two principal types of demand: Deterministic Demand (Chapter 2.1) and Stochastic Demand (Chapter 2.2).
2.1 Deterministic Demand
Deterministic methods, in terms of inventory control, are used when all parameters and variables are known and the demand does not present uncertainty (Chan (2019)). With the deterministic methods, the provided forecast of the demand will be the best estimation instead of an approximation with certain probabilities (“Deterministic and Probabilistic Methods of Inventory Control” (2010)). For deterministic demand, the revision system used is not relevant, since the demand is known in time and not stochastic. Therefore, the behavior of the inventory level is expected.
2.2 Stochastic Demand
Stochastic methods are used for demand behaviors with uncertainty or random variables. In this case, the demand is defined by a probability distribution based on the historical demand (Nahmias and Olsen (2015)).