Int. J.

Production Economics 60—61 (1999) 395 — 404

Measuring the impact of asymmetric demand distributions

on inventories
Emilio Bartezzaghi, Roberto Verganti, Giulio Zotteri*
Dipartimento di Economia e Produzione, Politecnico di Milano, Piazza L. da Vinci, 32, I-20133, Milan, Italy

Abstract
Most studies on inventory management under demand uncertainty analyse the detrimental impacts of demand
variability (i.e., its coefficient of variation). Consequences of the shape of demand distribution (i.e., its multi-modality and
asymmetry) have instead received only minor attention. This paper focuses on the study of the effects of the shape of
demand distribution on inventories. Results from a simulation show that demand shape plays a key role in the
determination of the stock investments. In particular, this paper measures asymmetry of demand distributions and shows
its significant impact on inventories. Moreover, it is demonstrated how multi-modality and asymmetry can both have
a negative or a positive impact, depending on the type of asymmetry and the target service level the firm is
facing.  1999 Elsevier Science B.V. All rights reserved.

Keywords: Lumpy demand; Demand distribution; Asymmetry; Skewness; Inventory

1. Introduction great differences between successive demand obser-

Over the last years the demand has become more
and more erratic due to some structural changes in
the market, such as a growing level of customisa-
tion and merges and acquisitions in industrial mar-
kets. These changes generated a new extremely
irregular demand, which is usually referred to as
“lumpy”. A lumpy demand is characterised by
a high level of variability as measured by the coeffic-
ient of variation [1—3]. However, a lumpy demand
is not only variable but also nervous thus entailing
* Corresponding author. Tel.: #39 2 2399 2763;
#39 2 2399 2720; e-mail: giulio.zotteri@polimi.it.
vations [1,4,5] and sporadic, that is, demand peaks
follow several periods of zero or low demand
[6—11]. In the past, this demand pattern was asso-
ciated with make to order environments where no
demand uncertainty was to be managed. In recent
years customers’ pressure towards delivery lead-
time reduction sets the problem of managing a both
uncertain and lumpy demand. In the literature,
only few studies deal with such an irregular de-
mand. Some researchers have proposed methods
for forecasting an uncertain lumpy demand (e.g.,
[4,12—14]), others have focused on the management
of the manufacturing resources while facing an un-
certain lumpy demand [1,2,6,7,11].
fax: Though interesting, most of these studies concen-
trated their attention on the analysis of demand

0925-5273/99/$ - see front matter  1999 Elsevier Science B.V. All rights reserved.
PII: S 0 9 2 5 - 5 2 7 3 ( 9 8 ) 0 0 1 9 3 - 5
396 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404
variability, thus measuring demand lumpiness
through the coefficient of variation (CV). In fact,
metrics of variability are well established, while
the analysis of a nervous and sporadic demand
entails greater problems. The purpose of this paper
is to complete previous analyses and to study the
effects of “sporadicness” on the manufacturing
planning and control (MPC) system. In particular,
we model the “sporadicness” of demand through
the shape of its probability distribution. In fact, the
shape of the probability distribution (for example
a normal rather than a uniform demand distribu-
tion) determines the demand pattern (that is, for
example, regular, rather than lumpy pattern).
Hence, we will compare the effects of different
shapes of the probability distribution of the de-
mand which correspond to different degrees of
sporadicness (i.e., lumpiness). Though different de-
mand distributions will have different degrees of
sporadicness, they will have the same expected
value and coefficient of variation in order to isolate
the effects of demand shape from the ones of de-
mand variability. More in detail, the research aims
at understanding whether different demand pat-
terns imply significant difference in performances of
the MPC system and, in particular, whether more
lumpy demand shapes involve higher stocks. More-
over, we aim at identifying the characteristics of the
demand shape that increase the level of inventories.
Finally, we would like to identify these character-
istics through metrics. The remainder of the paper
is organised as follows. Section 2 analyses the re-
search methodology which is based on a simula-
tion. Section 3 describes the structure of the
simulation model and illustrates the experimental
design. Section 4 reports results from the simula-
tion and interprets them. Finally, Section 5 dis-
cusses conclusions.
2. The research method
The paper uses simulation to study the impact of
the shape of demand distribution on inventories.
Different shapes, which generate an increasing level
of irregularity in the demand, are investigated.
Within each comparison, different distributions
have same mean and CV to allow a focused analy-
sis only on the effect of demand shape, ceteris
paribus.
The impact of different demand shapes on the
MPC system is investigated in terms of two basic
performance criteria of the MPC system: service
level and inventory level. The former is considered
as a parametric target. Hence, the paper compares
the inventory levels needed to guarantee a given
service level target, while facing different shapes of
demand distribution. This approach enables to
compare the different alternatives on a single para-
meter and avoid any weight introduction for bal-
ancing the service and inventory levels. Moreover,
this choice is coherent with the practice of setting
a service level goal and trying to minimise the
inventories, which is diffused both among practi-
tioners and researchers. Given this approach, the
paper aims at investigating the following set of
research questions:
I. Relevance of demand shape. Have different
demand shapes significantly different impacts
on the MPC system?
II. Effects of demand shapes with increasing levels
of C». What is the influence of CV on the
above phenomenon? Does the role of CV
depend on the shape of demand distribution?
III. Characteristics of demand shape. Which are
the characteristics of demand shape that in-
fluence inventories?
IV. Effects of different service level targets. Does
the target service level influence the impact of
demand shape? Does the influence of service
level on inventories depend on the shape of
demand distribution?
V. Metrics. Which metrics can be adopted to
measure the above characteristics? Can we
use these metrics to predict the inventory
investment needed to reach a given service
level target?
3. The simulation model
The simulation model consists of three modules.
The first one is a demand generator. It allows to set
demand distributions with different shapes, given
their mean and coefficient of variation. The second
module performs demand forecast on the basis of
 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404
an exponential weighted moving average. The third
module performs production and inventory plann-
ing through MPS and does not consider back-log.
The MPS adopts a lot for the rule (see [1,3]). The
inventory structure is a one-stage inventory. The
production lead time is set to 1. As far as perfor-
mance is considered, service level (SL) and inven-
tory level (IL) were measured. SL is computed as
the percentage of satisfied demand over the simula-
tion run. The inventory level is computed as the
term-end inventory level. Each simulation was 330
periods long. The first 30 periods were not con-
sidered to avoid any distortion due to rump up.
Hence, for each experimental condition 10 simula-
tion runs were performed to provide more reliable
conclusions. Since this study is aimed at analysing
the effects of the demand shape on inventories, we
want to evaluate the statistical significance of the
difference in inventories induced by different de-
mand shapes. The same set of stochastic numbers
was adopted under different experimental condi-
tions to create a positive correlation among differ-
ent demand distributions and reduce the standard
deviation of the difference in performance. These
techniques provided good statistical confidence of
the conclusions. The simulation experiments were
performed according to different combinations of
the following three parameters:
E shape of the demand distribution (six shapes),
E coefficient of variation (three values),
E target service level (five values).
The shape of the demand distribution was the
investigated variable. As previously said, when
comparing different demand shapes the demand
distributions have the same mean and CV. In par-
ticular, the mean value of all the different distribu-
tions was set to 100 in all the experimental
conditions. The CV is a parameter that can assume
three different values (0.1; 0.2; 0.4) although it is
kept constant when comparing different demand
shapes (higher levels of the CV are inconsistent with
demand distributions A and B).
The distributions are here reported in Fig. 1
ranging from more classical and simple ones to
more complex ones (i.e. multimodal and asymmet-
ric). Demand distribution B is a normal distribu-
tion. Distribution C is a beta whose range is set
397
between 0 and 2000. The mode of distribution is
below 100. Distribution D is a bi-modal distribu-
tion obtained from the combination of two beta
distributions whose range is between 0 and 2000 (in
Fig. 1 the modes are highlighted by a bar). The beta
with a lower mean value covers 90% probability
while the beta with higher mean covers 10% of
cases. The CV and mean of each single beta are set
so that the mean of the joined resulting distribution
is 100 and the CV reaches the given value set in the
experiment. Distribution D is similar to E, but the
beta with lower mean value is considered with
a 95% probability. Distribution F is a bi-modal
distribution. With a probability p the demand is

zero. Otherwise a beta distribution defined between
0 and 2000 is considered. The mean, CV of the beta
and p are set to guarantee the given mean and CV

to the overall distribution. Finally, the following
target service levels were tested: SL"99.99; 99; 95;
85; 70.
4. Simulation analysis and results
The large amount of data ranging from all the
possible combinations of the experimental para-
meters does not enable a detailed analysis of all the
scenarios. Hence, in this paper we will discuss the
research questions set in Section 2 and will report
only some of the most relevant findings.
4.1. Relevance of demand shape
Table 1 reports the inventories needed to achieve
a 99.99% service level when considering the six
different demand shapes with different levels of CV.
If we read Table 1 by columns we can find what is
generally known in the literature, that is, given
a certain shape of demand distribution (e.g., given
the normal distribution) the higher the CV the
more a firm needs inventories to reach a given
service level. However, Table 1 also helps to under-
stand the impact of the shape of demand distribu-
tion on inventories. In fact, if we read Table 1 by
lines we can see that, given a certain CV (for
example given a CV"0.2), the shape of the de-
mand distribution can have a relevant impact on
398 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404
Fig. 1. Experimental design: the different demand shapes.
Table 1
Inventories induced by different shapes of demand distribution
and different levels of CV (with SL"99.99%). Statistical signifi-
cance: highest reversal ranking probability p"8.6% (E against
D with CV"0.4). In all other cases p(5%
inventories. In fact, while the uniform demand (A)
requires a mean inventory of about 66.6 units, the
multimodal beta distribution (E) needs 143.1 units
and less than 40 are required in the case of demand
F. The analysis of data shows that the demand
shape is not a secondary factor in the determina-
tion of the inventories, as compared to the CV. Let
us consider distribution A in the case of CV"0.2
as the starting point of our analysis. If, given the
demand shape A, we increase the CV up to 0.4
inventories and reach 132.7 (CV increases invento-
ries by 100%). However, given the CV equal to 0.2,
if we change the demand shape and consider de-
mand shape E the inventories grow up to 143.1
(demand shape lets inventories increase more than
100%). In other words, the impact of different
demand shapes on inventories is comparable to the
effect of doubling the CV.
Note that the results are statistically significant.
In fact, for example, in case of CV"0.4, the prob-
ability that the normal distribution (B) requires
more inventory investment than distribution E is
0.07%. Moreover, the highest reversal ranking
probability is 8.6% between the two bi-modal beta
 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404
distributions E and D. All the analyses showed
similar patterns of statistical confidence. For the
sake of simplicity, data about reliability of findings
will not be further reported extensively in the fol-
lowing analyses.
4.2. Effects of demand shapes with increasing levels
of CV
Fig. 2 reports the difference in inventory invest-
ment between the normal distribution and the
other ones. This figure clearly shows that as the CV
grows the difference in inventories between differ-
ent demand shapes tend to grow too (in absolute
terms). In other words, we shall consider the shape
of demand distribution especially when CV is high.
In particular, an in-depth analysis of the data
shows that inventories tend to grow almost propor-
tionally to the CV (see Table 1). Hence, also differ-
ences between inventories induced by different
demand shapes grow proportionally to the CV (see
Fig. 2). Therefore the CV drives the magnitude of
the difference between the inventories induced by
different demand shapes. This has relevant implica-
tions for managers. In fact, managers shall consider
the shape of the demand distribution especially
when considering highly variable demands (de-
mands with high CVs).
Fig. 2. Effect of CV on the marginal inventory induced by different demand shapes (SL"99.99%).
399
4.3. Characteristics of demand shape
Once the relevance of the shape of demand distri-
bution is assessed we shall try to understand which
are the characteristics of the shape of demand dis-
tribution that generate more inventories. A keen
analysis of Table 1 shows that the ranking of the
demand distributions follows the ranking exposed
in paragraph 3. That is, more complex and irregu-
lar demand shapes seem to require more inventory
investment to guarantee a given (and high) service
level (for example, demand shape B generates more
inventories than A, and demand shape C involves
more inventories than B). This seems to confirm the
hypothesis that demand multi-modality and asym-
metry bring about more inventories.
However, the most irregular demand shape (F),
characterised by zeros in the demand series, re-
quires fewer stocks than any other demand shape.
This phenomenon shall be further investigated.
Though at a first look demand shapes E and F are
very similar, since they both are asymmetric and
multi-modal, they involve very different inventory
investments. We shall better identify the differences
in the shape of demand that bring about different
inventories. While for distribution E the value of
the right mode (modes are highlighted with a bar
on the demand axes in Fig. 1) is far greater than the
mean value, it is not so for distribution F. This is
400 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404

due to the fact that the right mode occurs in 5% of

cases for E, while for demand shape F the right
mode occurs in 86.22% of cases (in the case of
CV"0.4). This means that they both are asymmet-
ric but, while E has a long right tail and has “right
asymmetry”, F has a “left asymmetry”. This brings
about some relevant differences. In fact, when man-
agers set high service levels, inventories should face
also higher demand peaks. For demand with “right
asymmetry”, the right mode is significantly greater
than the mean, while, in case of “left asymmetry”, Fig. 3. The relationship between demand shape and service
the right mode is relatively close to the mean. level (CV"0.4).
Hence, in the former case demand peaks are con-
siderably higher and the stocks needed to satisfy
them are high too.
be considered important variables but also the kind
This phenomenon can be explained through the
of asymmetry (right rather than left) plays a key
analysis of the dynamics that determine SL. In fact,
role. On the basis of this analysis we can suppose
a firm that keeps in its warehouses an inventory
that asymmetry can both have a negative or a pos-
level i at the beginning of each single period, gains
itive impact, depending on the kind of asymmetry
a service level SL(i) (as defined in Section 3) equal
and the target service level the firm is facing. In
to
particular, we expect “right asymmetry” to gener-


G >
 x f (x) dx#i  f (x) dx
SL(i)"  G 100,
>
 x f (x) dx

where x is the demand and f (x) is the probability
distribution of the demand.
In other words, if a firm keeps 80 product units in
its warehouses, it will satisfy all the requests if the
demand is below 80 and will satisfy just 80 requests
if the demand exceeds 80. To generate a 99.99%
service level, we shall set an inventory level so that
SL(i) reaches 99.99. However, due to the differences
in the kind of asymmetry the two SL(i) curves are
considerably different (see Fig. 3). Thus the two
SL(i) curves reach 99.99 for very different target
inventory levels. Synthetically, this analysis shows
that asymmetry can impact on the inventory invest-
ment since it generates great differences in the SL(i)
curves.
On the other hand, the analysis of the SL(i)
curves shows that for lower SL targets, the cumu-
lative distribution F is lower than E and, hence, it
may involve higher stocks.
Therefore, on the basis of our analysis, it seems
that not only multi-modality and asymmetry can
ate higher stocks for higher SL targets while “left
asymmetry” may endorse higher inventory invest-
ments for extremely low SL targets. These findings
will be further tested and discussed in Section 4.4.
4.4. Effects of different service level targets
The analysis of the effects of different SLs (see
Fig. 4) clearly shows that, as expected, these induce
different inventory investments. Moreover, the fig-
ure shows that SL impacts on the magnitude of the
difference between inventories induced by different
demand shapes. The higher the target SL is, the
more a firm shall carefully analyse the demand
shape to properly define its inventory policies.
Finally, Fig. 4 confirms previous considerations on
the impact of SL on the ranking of different alterna-
tives. For example, Fig. 4 shows that for lower SL,
demand shape A entails the highest inventory in-
vestment, while demand shape D and E are asking
for lower inventories. On the contrary, for higher
SL, D and E require higher inventories than A. This
analysis suggests that while the CV can be con-
sidered just a magnitude factor, the effects of SL are
more complex. For demand shapes such as A and
 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404
Fig. 4. Impact of demand shape on inventories according to different service levels (CV"0.4).
F, enhancing the SL might endorse limited extra-
inventories, while for others such as D and E the
same enhancement in SL targets generates a tre-
mendous impact on inventory holding cost. Obvi-
ously, this information might be of major relevance
for practitioners who try to set optimal SL to bal-
ance the cost of holding large amounts of invento-
ries and customers satisfaction.
4.5. Metrics
Given the above analysis, in order to assess
lumpiness of the demand we shall consider two
variables in addition to the traditional CV: multi-
modality and asymmetry (that can be either “left”
or “right”). To perform this assessment, two ap-
proaches may be followed. First, we can develop
“ad hoc” indexes that simultaneously consider
different aspects of demand lumpiness, that is, varia-
bility, multi-modality and asymmetry. Second, we
can adopt tools that measure each single dimension
of lumpiness separately. Though we are investigat-
ing both approaches, in this paper, the second alter-
native will be presented. In particular, while the
concept of demand multi-modality is quite clear
and recognisable (managers shall only recognise if
any irregular phenomenon adds to a more regular
401
and smooth one), the measure of demand asym-
metry is quite complex. The coefficient of skewness
may serve the purpose, since it is often used in
statistics to measure asymmetry of distributions
(especially in case of multi-modal distributions).
The coefficient of skewness is defined as
Sk"k /p, where k is the third-order momentum
 
of the demand distribution and p is the standard
deviation.
Fig. 5 analyses the relationship between the
skewness of demand and inventories in the case
of SL"99.99%. This figure confirms that the
asymmetry, as measured by the coefficient of skew-
ness, drives inventories. In fact, when we consider
high service levels and a given CV, the demand
shapes that have the highest coefficient of skewness
require more investment (D and E). On the other
hand, demand pattern F requires less inventories
than any other demand distribution and has
a negative skewness (note that the skewness of
some demand shapes partially changes since de-
mand parameters such as p are modified to

guarantee increasing levels of CV). Moreover,
Fig. 5 demonstrates that, given a high SL, there is
a clear and almost proportional relationship be-
tween asymmetry and inventories. Finally, this fig-
ure seems to demonstrate that the relevance of
demand skewness grows as the CV grows. In fact,
402 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404
Fig. 5. Effect of skewness on inventories (SL"99.99%).
in case of CV"0.2 the curve is quite flat. On the
contrary, in case of CV"0.4 the curve is quite
leaning. In other words, this figure confirms results
shown in Fig. 2. As previously said the CV acts
mainly as a magnitudo factor and, obviously the
effects of skewness are much more relevant when
the magnitudo factor is relatively high.
On the other hand, a similar analysis can be
performed in case of low service levels. In particu-
lar, Fig. 6 reports the relationship between demand
skewness and inventories in case of SL"70%. As
expected from previous analyses, when the skew-
ness grows inventories decrease, that is to say that
in case of low target service levels right asymmetry
(positive skewness) tends to let inventories de-
crease. Hence, in case of low service level there is
a negative relationship between skewness and in-
ventories. Moreover, also in this case the CV plays
as a magnitudo factor (the curve is flat in the case of
CV"0.1 and is leaning in the case of CV"0.4).
Data about the reliability of this measures of the
asymmetry are plotted in Fig. 5 (in particular, for
the sake of simplicity data are reported only in case
of CV"0.4). The reliability of the skewness is
highlighted through the average of the skewness
plus and minus 2p. Also, as shown in Fig. 5, the
skewness of the different demand shapes is quite
reliable.
Though the relationship between skewness and
inventories seems to be quite clear and progressive,
we can see that both in Figs. 4 and 5, the curves face
a step between points A and B. Distributions A and
B are both symmetric distributions. However, they
clearly differ as far as their structure is concerned.
While we can easily identify the mode of the normal
distribution B, we cannot for the uniform distribu-
tion A (see Fig. 1). Hence, they both are symmetric
distributions (their skewness is zero), but they are
quite different as far as their kurtosis is concerned
(note that the kurtosis is an index that measures the
height of the mode of a probability distribution). In
other words, we can suppose that the step in the
curves might be associated to a variable which is
not plotted in the figures. Future studies should
better focus on this latter variable and try to evalu-
ate its relative importance as compared to the one
of the CV and skewness.
The above discussion shows that, to better
understand the role of demand shape in the deter-
mination of inventories, it is not necessary to
estimate in details the shape of the demand
distribution (which is impossible in most real
cases). Managers can simply focus on a few
parameters, such as the modality of the demand
and the asymmetry as measured by the coefficient
of skewness.
 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404
Fig. 6. Effect of skewness on inventories (SL"70%).
5. Conclusions
This paper investigated the effects of different
demand distributions under a variety of experi-
mental conditions. The results of the simulation
demonstrate that demand shape can have a signifi-
cant impact on inventories. This finding sets some
relevant implications both for practitioners and
researchers. In fact, when dealing with uncertain
demand, an additional parameter should be con-
sidered (especially when a high service level and CV
are considered). Obviously, practitioners are not
supposed to perform a precise analysis of the de-
mand distribution, however, they must recognise
whether their demand follows a relatively regular
pattern or it is an irregular multi-modal and asym-
metric phenomenon in order to better estimate the
inventory costs induced by different service level
targets.
As far as research is concerned, this study sets
some relevant problems. In fact, it does not simply
state that different demand patterns may influence
the inventory holding cost, but identifies and sets
metrics for some relevant, and relatively easy to
detect, characteristics of the demand distribution.
More in detail this paper demonstrates the complex
relationship between skewness, service level targets
and inventories. This finding sets a relevant re-
403
search question. In particular, we shall better
understand the number of demand observations
needed to estimate the skewness in a real planning
environment. Moreover, the role and the relevance
of multi-modality and kurtosis should be better
identified. In addition, though this research seems
to highlight that asymmetry is a relevant character-
istic, future studies should test these findings under
different product structures.
Finally, we might expect that different shapes of
demand ask for different managerial approaches.
For example, qualitative forecasts and advanced
planning techniques such as hedging might be ad-
opted to predict and manage demand peaks, typi-
cally observed in the case of right asymmetry
(positive skewness). On the other hand, classical
forecasting and planning techniques might be ad-
opted in more classical situations. Thus, further
researches are needed to better identify contingency
relationships between skewness and managerial ap-
proaches to demand management
Acknowledgements
Financial support of “Models and Techniques
for managing demand uncertainty in manufactur-
ing planning and control systems” by C.N.R.
404 E. Bartezzaghi et al. /Int. J. Production Economics 60—61 (1999) 395 — 404
(National Research Council of Italy) is gratefully
acknowledged. The paper is due to the joint work
of the authors. However, Emilio Bartezzaghi has
written Section 5, Roberto Verganti Sections 1 and
2, and Giulio Zotteri Sections 3 and 4.
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