Maintaining an optimal inventory level is the key role of the management in the inventory carrying business. Larger inventory investment can generate higher revenue, but involves more costs such as financing costs, opportunity costs, inventory carryin...
Maintaining an optimal inventory level is the key role of the management in the inventory carrying business. Larger inventory investment can generate higher revenue, but involves more costs such as financing costs, opportunity costs, inventory carrying costs etc. On the contrary, smaller inventory investment generates less revenue, but requires less cost. The problem of keeping the balance between cost and profit is the problem of keeping the balance between investment in stock and service level. In other words, optimizing the inventory control system is to minimize the inventory investment while sustaining the desired service level. Also, it is true that the reduction of inventory level decreases not only inventory cost, but also the actual service level.
In this research, the system is assumed to carry a single item of which the demand types vary. Demand type is defined as a management's classification of the item according to the demand source or to the service purpose.
The purpose of this research is to find the optimal inventory control policy when the system carries a single item which consists of multiple demand types. In this research , the optimizing algorithm contains a heuristic, therefore, the optimal is not guaranteed by the algorithm. At least, this research provides the solution to the problems that have not been solved by the existing algorithms.
It is a reasonable decision to set a different service level for each type when a system has a single type item, the optimal condition of the system is obtained by using the EOQ model. However, if the number of the demand types is increased, a more complicated optimization process is required to meet the service level of each type.
In the optimization process concerning the service level and the inventory investment, the important factors are the reorder point, the purchasing order quantity, and the safety stock. The terminology of order is classified into two categories ; the purchasing order and the selling order. Purchasing order refers to the order refers to the order that a company places to an outside vender for the purpose of replenishing purchasing the inventory, replenishing order or reorder shall be used interchangeably.
The demand distributions and their parameters are assumed to be given. Traditionally, the demand pattern has been considered given in the form of a constant or a probability function. In this research, the demand per period is considered to be a function which consists of the number of orders per period and the demand per order.