On the Variability of Demand for Families of Items

For the purposes of inventory control and production planning of multi-product lines, often consisting of hundreds or thousands of items differing only in minor ways from each other, it is often found that the variability of demand for individual items can be expressed as a simple function of the expected demand for each item. Usually this is not Poisson variability. In this paper a simple demand model is proposed which generates variability of the type often observed, and which in fact leads directly to the Quadratic Law of Burgin and Wild. It is noted how, in practice, it may be hard to distinguish between this law and the Power Law (Brown). The difference, however, is by no means unimportant, and this is discussed. The statistical problems involved in estimating either law from practical data are also shown to be non-trivial.