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Balancing Accuracy and Simplicity in Determining Reorder Points

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  • Joseph A. Hunt

    (Ernst & Ernst, Cleveland, Ohio)

Abstract

Many methods have been developed to determine the proper reorder points and order quantities in an inventory system. These methods are based on a wide range of inventory models--from elementary deterministic models to sophisticated probabilistic models with time-varying parameters. This paper deals with two topics related to these calculations which were encountered during the design of an inventory control system for a firm in the heavy goods industry. A mathematical model is developed to describe the average annual variable cost of maintaining the inventory. Based on this model, the paper evaluates the savings obtained by using a simultaneous solution for reorder point and order quantity rather than a simpler separate solution. Then, this model is extended to describe the effect of batch withdrawals as a renewal process. The paper presents an adjustment which can be applied to the original reorder points based on unit withdrawals. Both of these topics are described in the context of a practical application.

Suggested Citation

  • Joseph A. Hunt, 1965. "Balancing Accuracy and Simplicity in Determining Reorder Points," Management Science, INFORMS, vol. 12(4), pages 94-103, December.
    • Handle: RePEc:inm:ormnsc:v:12:y:1965:i:4:p:b94-b103
    DOI: 10.1287/mnsc.12.4.B94
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    Cited by:

    1. Roberto Rossi & S. Armagan Tarim & Ramesh Bollapragada, 2012. "Constraint-Based Local Search for Inventory Control Under Stochastic Demand and Lead Time," INFORMS Journal on Computing, INFORMS, vol. 24(1), pages 66-80, February.
    2. Rossi, Roberto & Tarim, S. Armagan & Hnich, Brahim & Prestwich, Steven, 2010. "Computing the non-stationary replenishment cycle inventory policy under stochastic supplier lead-times," International Journal of Production Economics, Elsevier, vol. 127(1), pages 180-189, September.

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