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An examination of the size of orders from customers, their characterisation and the implications for inventory control of slow moving items

Author

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  • F R Johnston

    (University of Warwick)

  • J E Boylan

    (Buckinghamshire Chilterns University College)

  • E A Shale

    (University of Warwick)

Abstract

This paper examines half a million observations of the size of orders from customers at an electrical wholesaler. It notes: the distribution of the size of customer orders for a single item (stock keeping unit or SKU) is very skewed and resembles a geometric distribution; while the average size of an order is different for different items, for one SKU the mean order size is effectively the same at different branches even when the branches have very different demand rates; across a range of SKUs there is a strong relationship linking the mean and the variance of order size. The general results above are shown to apply to even the slowest movers. This extension is important because for items with intermittent demand the size of customer orders is required to produce an unbiased estimate of demand. Also a knowledge of the distribution of demand is important for setting maximum and minimum stock levels and the scheme employed is described.

Suggested Citation

  • F R Johnston & J E Boylan & E A Shale, 2003. "An examination of the size of orders from customers, their characterisation and the implications for inventory control of slow moving items," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(8), pages 833-837, August.
    • Handle: RePEc:pal:jorsoc:v:54:y:2003:i:8:d:10.1057_palgrave.jors.2601586
    DOI: 10.1057/palgrave.jors.2601586
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    References listed on IDEAS

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    1. Willemain, Thomas R. & Smart, Charles N. & Shockor, Joseph H. & DeSautels, Philip A., 1994. "Forecasting intermittent demand in manufacturing: a comparative evaluation of Croston's method," International Journal of Forecasting, Elsevier, vol. 10(4), pages 529-538, December.
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