Inventory management optimal order quantity

Inefficient inventory replenishment can be major source of cost in a supply chain. Replenishment management determines optimal order quantities to minimize the combined cost of inventory holding and shortages, for individual suppliers and customers. In a supply chain, additional constraints such as the coordination of flows from vendors to distribution centers (DC) and from DC to stores, moderate replenishment decisions. Moreover, replenishment decisions must incorporate orders from multiple channels such as catalogs, and the internet. 

Finally, we should point out that the matrix in Figure 3.1 presents what would appear to be reasonable approaches to managing demand in these four demand contexts, but not necessarily the only approaches. For example, non-stationary reorder point-order quantity systems are certainly possible, but probably not applied very often in practice due to the significant computational analysis that would be required. Indeed, the effort required to manage the system must clearly be considered in deciding which system to apply. While the "optimal" solution (at least from the standpoint of an objective that minimizes solely the costs that are directly impacted by inventory... 

In traditional stock managment there are two basic approaches see Chapter 7, namely the pull approach and the push approach. In a pull system a warehouse is viewed as independent of the supply chain and inventory is replenished with order sizes based on apredetermined stock level for each warehouse. The stockmanage-ment model for the pull syston is normally geared to establish re-order level (ROL) and re-order quantity (ROQ). That is, when the stock drops to a certain level, a re-order is triggered of a predetermined amount. The ROQ takes into account past danands and the lead times for a re-order to be satisfied. The aim is to have as small amount of inventory as possible on hand at any one time, and the ROQ should likewise be as small as possible. However in some processes, such as a batch system, there will be a minimum amount that can be produced and in other cases there can be economies of scale which will determine the optimal size of an order. The push method is used when economies of scale in procurement outweigh... 

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