This article provides a synthesis of the most important issues related to the management of inventory held to cover so-called independent demand. This is characterized not only by the mutual independence of demand for individual stock-keeping units, but more importantly, it is often marked by high variability of a random nature that does not lend itself to forecasting analysis. These problems are generally typical of so-called decoupling points in the logistics chain, which constitute the main point of inventory holding. Depending on the nature of the industry, as well as the market or even a specific product, these can be stocks of goods in distribution networks, stocks of goods in a central warehouse, stocks of materials and sub-assemblies for assembly, or stocks of materials and raw materials for production held by the manufacturer or their supplier.
A key issue here is determining the appropriate level of so-called safety stock to ensure continuity of issues in the event of increased demand during the replenishment cycle. This, in turn, can be the result not only of an increase in demand generated by customers in a given unit of time, but also of an extension in the duration of this cycle. In other words, safety stock helps counteract increased market demand and delivery delays. The principles of calculating the required level of safety stock under various inventory replenishment models (methods), as well as elementary methods for optimizing the level of cycle stock, are the subject of classical inventory theory. Despite the continuous development of new concepts and organizational solutions aimed at reducing inventory, its fundamental relationships are still widely used, and basic formulas are provided in modern IT systems – both those specialized, dedicated mainly to inventory and warehouse management problems, and large, integrated systems supporting the management of entire enterprises.
The article comes from the magazine “Logistyka” 1/2003.