Replenishments

Abstract

Replenishing the stock is one of the most important functions in the control of the inventory. The goal is to replenish the stock that properly covers the customer demands at minimum cost in inventory. To accomplish, two measures are regularly computed: the order point and order level. Each day, these are compared to the current on-hand plus on-order inventory to determine if a new replenishment is needed now, and if so, how much. Each replenishment must conform with any constraints provided by the supplier, as minimum buy quantity and multiple buy quantity. For analysis sake, the inventory is partitioned into cycle stock and safety stock, where the sum is the total stock. The ingredients that affect the stock levels are the percent fill, lead-time, coefficient of variation, and month-in-buy. The sensitivity of each with the stock levels and with the turnover is described. In many retail entities, the demand for each item is low, and thereby the Poisson distribution is used to determine the order point and order level. For entities with low demand items, table entries are provided to guide the management on how to set the order point and order level.