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Inventory theory

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100: 202:, which argues that the costs of carrying inventory have typically been underestimated, including both the direct, obvious costs of storage space and insurance, but also the harder-to-measure costs of increased variables and complexity, and thus decreased flexibility, for the business enterprise. 156:
One issue is infrequent large orders vs. frequent small orders. Large orders will increase the amount of inventory on hand, which is costly, but may benefit from volume discounts. Frequent orders are costly to process, and the resulting small inventory levels may increase the probability of
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aspects of food preparation and presentation, and so it is rational to buy and store somewhat more to reduce the chances of running out of key ingredients. The situation often comes down to two key questions: confidence in the merchandise selling, and the benefits accruing if it does?
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is allowed to go negative, corresponding to back-ordered items, will depend on the specific situation; if allowed there will usually be a penalty for back orders. The store has costs that are related to the number of items in store and the number of items ordered:
181:: if the items are not on the shelves, they cannot be sold. And the wholesale market is not perfect; there can be considerable delays, particularly with the most popular toys. So, the entrepreneur or business manager will buy speculatively. Another example is a 197:
inventory often accumulates between two departments because the consuming and the producing department do not coordinate their work. With improved coordination this buffer inventory could be eliminated. This leads to the whole philosophy of
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A second issue is related to changes in demand (predictable or random) for the product. For example, having the needed merchandise on hand in order to make sales during the appropriate buying season(s). A classic example is a
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store. If there is a six-week, or more, delay for customers to receive merchandise, some sales will be lost. A further example is a restaurant, where a considerable percentage of the sales are the
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is the problem faced by a firm that must decide how much to order in each time period to meet demand for its products. The problem can be modeled using mathematical techniques of
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Simchi-Levi, David, Xin Chen, and Julien Bramel. The Logic of Logistics: Theory, Algorithms, and Applications for Logistics Management, 2nd ed. New York: Springer Verlag, 2004.
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Kenneth J. Arrow, Samuel Karlin, and Herbert E. Scarf: Studies in the Mathematical Theory of Inventory and Production, Stanford University Press, 1958
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Silver, Edward A., David F. Pyke, and Rein Peterson. Inventory Management and Production Planning and Scheduling, 3rd ed. Hoboken, NJ: Wiley, 1998.
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A third issue comes from the view that inventory also serves the function of decoupling two separate operations. For example,
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Snyder, Lawrence V. Fundamentals of Supply Chain Theory, 2nd ed. Hoboken, NJ: John Wiley & Sons, Inc, 2019.
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Tempelmeier, Horst. Inventory Management in Supply Networks, 3rd. Edition, Norderstedt (Books on Demand) 2011,
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Porteus, Evan L. Foundations of Stochastic Inventory Theory. Stanford, CA: Stanford University Press, 2002.
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Although the number of models described in the literature is immense, the following is a list of classics:
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Thomson M. Whitin, G. Hadley, Analysis of Inventory Systems, Englewood Cliffs: Prentice-Hall 1963
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Many university courses in inventory theory use one or more of the following current textbooks:
724:), upper bounds on inventory and so on. Inventory models can be based on different assumptions: 1110: 1100: 1090: 1079: 1062: 1046: 1036: 1026: 1016: 1006: 950: 900: 983: 863: 857: 697: 613: 446: 287: 260: 233: 787: 194: 75: 17: 314: 213: 1123: 760: 746: 51: 694:
Many other features can be added to the model, including multiple products (denoted
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The mathematical approach is typically formulated as follows: a store has, at time
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Rossi, Roberto. Inventory Analytics. Cambridge, UK: Open Book Publishers, 2021.
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Zipkin, Paul H. Foundations of Inventory Management. Boston: McGraw Hill, 2000.
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Zipkin Paul H., Foundations of Inventory Management, Boston: McGraw Hill, 2000,
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allocation and so on and provides the mathematical foundation for
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theory of inventory and production) is the sub-specialty within
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Axsaeter, Sven. Inventory Control. Norwell, MA: Kluwer, 2000.
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Inventory and Supply Chain Management with Forecast Updates
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Beyer, D., Cheng, F., Sethi, S.P., and Taksar, M.I.,
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Demand is random, only one replenishment: classical
982:International Journal of Inventory Research is an 716: 683: 629: 599: 528: 462: 432: 398: 323: 303: 276: 249: 222: 986:on inventory theory publishing current research. 843:Constant fill rate for the part being produced: 836:Infinite fill rate for the part being produced: 331:follows a given probability distribution. Thus: 42:that is concerned with the design of production/ 887:Several products produced on the same machine: 990:Classic books that established the field are: 257:items in stock. It then orders (and receives) 8: 862:Demand is random, continuous replenishment: 881:Demand varies deterministically over time: 874:Demand varies deterministically over time: 868:Continuous replenishment with backorders: 705: 699: 672: 662: 651: 645: 621: 615: 588: 566: 547: 541: 517: 504: 485: 479: 454: 448: 418: 412: 399:{\displaystyle x_{k+1}=x_{k}+u_{k}-w_{k}} 390: 377: 364: 345: 339: 316: 295: 289: 268: 262: 241: 235: 215: 144:Learn how and when to remove this message 942: 600:{\displaystyle c_{k}=p(x_{k})+h(u_{k})} 536:. Often this will be in additive form: 1055:Sethi, S.P., Yan, H., and Zhang, H., 684:{\displaystyle \sum _{k=0}^{T}c_{k}.} 7: 850:Orders placed at regular intervals: 637:in an optimal way, i.e. to minimize 529:{\displaystyle c_{k}=c(x_{k},u_{k})} 790:: infinite, deterministic or random 25: 1075:Markovian Demand Inventory Models 793:Presence or absence of quantity 98: 889:Economic lot scheduling problem 778:: finite versus infinite (T=+∞) 969:, 3rd ed. Waveland Press, 2011 840:model, a.k.a. Wilson EOQ Model 594: 581: 572: 559: 523: 497: 1: 921:Inventory management software 772:: deterministic or stochastic 845:Economic production quantity 931:Warehouse management system 433:{\displaystyle u_{k}\geq 0} 124:the claims made and adding 1146: 610:The store wants to select 72:inventory control problem 18:Inventory control problem 926:Supply chain management 852:fixed time period model 838:Economic order quantity 781:Presence or absence of 1130:Inventory optimization 965:W. Hopp, M. Spearman, 916:Inventory optimization 878:or Wagner-Whitin model 876:Dynamic lot size model 718: 717:{\displaystyle x_{ik}} 685: 667: 631: 601: 530: 464: 434: 400: 325: 305: 278: 251: 224: 30:(or more formally the 883:Silver–Meal heuristic 823:Echelons: one or many 808:: infinite or limited 719: 686: 647: 632: 630:{\displaystyle u_{k}} 602: 531: 465: 463:{\displaystyle x_{k}} 435: 401: 326: 306: 304:{\displaystyle w_{k}} 279: 277:{\displaystyle u_{k}} 252: 250:{\displaystyle x_{k}} 225: 161:, leading to loss of 40:operations management 698: 644: 614: 540: 478: 447: 411: 338: 315: 288: 261: 234: 214: 84:network optimization 46:systems to minimize 906:Strategic inventory 80:dynamic programming 36:operations research 714: 681: 627: 597: 526: 460: 430: 396: 321: 301: 274: 247: 220: 109:possibly contains 1115:978-1-800-64176-1 1105:978-1-119-02484-2 1084:978-0-387-71603-9 901:Inventory control 734:deterministically 324:{\displaystyle w} 284:items, and sells 223:{\displaystyle k} 154: 153: 146: 111:original research 16:(Redirected from 1137: 984:academic journal 970: 963: 957: 947: 864:Base stock model 858:Newsvendor model 736:time-varying or 723: 721: 720: 715: 713: 712: 690: 688: 687: 682: 677: 676: 666: 661: 636: 634: 633: 628: 626: 625: 606: 604: 603: 598: 593: 592: 571: 570: 552: 551: 535: 533: 532: 527: 522: 521: 509: 508: 490: 489: 469: 467: 466: 461: 459: 458: 439: 437: 436: 431: 423: 422: 405: 403: 402: 397: 395: 394: 382: 381: 369: 368: 356: 355: 330: 328: 327: 322: 310: 308: 307: 302: 300: 299: 283: 281: 280: 275: 273: 272: 256: 254: 253: 248: 246: 245: 229: 227: 226: 221: 206:Inventory models 149: 142: 138: 135: 129: 126:inline citations 102: 101: 94: 21: 1145: 1144: 1140: 1139: 1138: 1136: 1135: 1134: 1120: 1119: 979: 977:Further reading 974: 973: 967:Factory Physics 964: 960: 948: 944: 939: 897: 830: 788:Production rate 701: 696: 695: 668: 642: 641: 617: 612: 611: 584: 562: 543: 538: 537: 513: 500: 481: 476: 475: 450: 445: 444: 414: 409: 408: 386: 373: 360: 341: 336: 335: 313: 312: 291: 286: 285: 264: 259: 258: 237: 232: 231: 212: 211: 208: 195:work in process 150: 139: 133: 130: 115: 103: 99: 92: 76:optimal control 28:Material theory 23: 22: 15: 12: 11: 5: 1143: 1141: 1133: 1132: 1122: 1121: 1118: 1117: 1107: 1097: 1087: 1070: 1053: 1043: 1033: 1023: 1013: 999: 998: 995: 988: 987: 978: 975: 972: 971: 958: 941: 940: 938: 935: 934: 933: 928: 923: 918: 913: 908: 903: 896: 893: 892: 891: 885: 879: 872: 866: 860: 854: 848: 841: 829: 828:Classic models 826: 825: 824: 821: 815: 809: 803: 797: 791: 785: 779: 773: 767: 753: 740: 711: 708: 704: 692: 691: 680: 675: 671: 665: 660: 657: 654: 650: 624: 620: 608: 607: 596: 591: 587: 583: 580: 577: 574: 569: 565: 561: 558: 555: 550: 546: 525: 520: 516: 512: 507: 503: 499: 496: 493: 488: 484: 457: 453: 441: 440: 429: 426: 421: 417: 406: 393: 389: 385: 380: 376: 372: 367: 363: 359: 354: 351: 348: 344: 320: 298: 294: 271: 267: 244: 240: 219: 207: 204: 152: 151: 106: 104: 97: 91: 88: 24: 14: 13: 10: 9: 6: 4: 3: 2: 1142: 1131: 1128: 1127: 1125: 1116: 1112: 1108: 1106: 1102: 1098: 1096: 1095:3-8423-4677-8 1092: 1088: 1085: 1081: 1077: 1076: 1071: 1068: 1067:1-4020-8123-5 1064: 1060: 1059: 1054: 1052: 1051:0-387-22199-9 1048: 1044: 1042: 1041:0-8047-4399-1 1038: 1034: 1032: 1031:0-387-33250-2 1028: 1024: 1022: 1021:0-256-11379-3 1018: 1014: 1012: 1011:0-471-11947-4 1008: 1004: 1003: 1002: 996: 993: 992: 991: 985: 981: 980: 976: 968: 962: 959: 956: 955:0-256-11379-3 952: 946: 943: 936: 932: 929: 927: 924: 922: 919: 917: 914: 912: 909: 907: 904: 902: 899: 898: 894: 890: 886: 884: 880: 877: 873: 871: 867: 865: 861: 859: 855: 853: 849: 846: 842: 839: 835: 834: 833: 827: 822: 820:: one or many 819: 816: 814:: one or many 813: 810: 807: 804: 802: 798: 796: 792: 789: 786: 784: 783:back-ordering 780: 777: 774: 771: 768: 766: 762: 758: 754: 752: 748: 744: 741: 739: 735: 731: 727: 726: 725: 709: 706: 702: 678: 673: 669: 663: 658: 655: 652: 648: 640: 639: 638: 622: 618: 589: 585: 578: 575: 567: 563: 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1124:Category 895:See also 818:Location 812:Products 806:Capacity 761:discrete 755:Flow of 747:variable 443:Whether 801:quality 763:versus 749:versus 177:before 169:found. 167:optimum 116:Please 1113:  1103:  1093:  1082:  1065:  1049:  1039:  1029:  1019:  1009:  953:  730:demand 90:Issues 70:. The 847:model 751:fixed 743:Costs 48:costs 1111:ISBN 1101:ISBN 1091:ISBN 1080:ISBN 1063:ISBN 1047:ISBN 1037:ISBN 1027:ISBN 1017:ISBN 1007:ISBN 951:ISBN 757:time 82:and 38:and 120:by 1126:: 759:: 745:: 230:, 78:, 62:, 58:, 54:, 1086:) 1069:) 710:k 707:i 703:x 679:. 674:k 670:c 664:T 659:0 656:= 653:k 623:k 619:u 595:) 590:k 586:u 582:( 579:h 576:+ 573:) 568:k 564:x 560:( 557:p 554:= 549:k 545:c 524:) 519:k 515:u 511:, 506:k 502:x 498:( 495:c 492:= 487:k 483:c 456:k 452:x 428:0 420:k 416:u 392:k 388:w 379:k 375:u 371:+ 366:k 362:x 358:= 353:1 350:+ 347:k 343:x 319:w 297:k 293:w 270:k 266:u 243:k 239:x 218:k 147:) 141:( 136:) 132:( 114:. 20:)

Index

Inventory control problem
mathematical
operations research
operations management
inventory
costs
manufacturing
warehousing
supply chains
spare part
logistics
optimal control
dynamic programming
network optimization
original research
improve it
verifying
inline citations
Learn how and when to remove this message
stockouts
customers
optimum
toy store
Christmas
furniture
value-added
work in process
Just In Time
demand
deterministically

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