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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.
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