Computing Expected Values of Customer Requests Backordered

Suppose that the stockout cost for a supplier is a function of the number of customer requests backordered, each request possibly being for several units of stock of a product. The problem arises of computing the expected number of customer requests backordered. when techniques are available for computing the expected number of units backordered. A simple conversion factor is desirable. Based on a formal analysis, the conversion factor 1/E(X) is recommended where E(X) is average size of a customer request. This conclusion is contrary to that reached in previously published research.

Analysis is extended to the case where backorder cost is time weighted; i.e., backordered sales are not lost, and the cost of a backorder depends on the time elapsing before the customer request is finally satisfied.