Inventory Control 2 Notes

Lecture 17: Inventory (Stock) Control 2 Summary Stochastic Demand * Given stochastic (probabilistic) demand, there is always the possibility of demand exceeding the amount in stock * [?] customers will be delayed in the supply of their goods * [?] stock control policy will be affected by stockouts * Sometimes the cost of a stockout can be found in cash terms * Cost equation can be formed and minimised * Other times, a 'service' level to customers is decided on * The inventory policy is then determined to meet this level * We can choose between: a. Continuous review policy (fixed order quantity) b. Periodic review policy (variable order quantity) Periodic Review: Instant Delivery Stock is inspected at regular intervals of time T Decision to restock is made at T Any order is supplied instantly Sufficient stock must be held after replenishment to cater for predicted demand until the next reorder period * A reasonable policy is to replenish the stock to some fixed level L every T units of time * * * * * T = the reorder period * Time between inspections of stock * R = shortage cost per unit stocked out * Independent of time * No backlogging * C = order cost * Independent of order size * B = stockholding cost per unit per unit time * Based on average stock level * = prob (j units demanded in T) * Average Stock Level = Half the opening stock + Half the average closing stock during T * * * * Probability of a stock out = Expected number of units stocked out = Expected stock level just before an order comes in = Expected difference between supply and demand = Graph demonstrating the pattern of stock level over time Course Notes Page 46 

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