Home / Summaries / Designing and Managing the Supply Chain / inventory-level-policy

Inventory Management and Risk Pooling - Single stage inventory

8 important questions on Inventory Management and Risk Pooling - Single stage inventory

What is aggregate forecasts as more accurate an example of?

Risk pooling

What is the trade-off when initial inventory is available?

The trade-off is between having a limited amount of inventory by avoiding paying the fixed cost versus paying the fixed cost and therefore having higher inventory level.

"Whenever the inventory level is reviewed, if it is below a certain point, s, we order (or produce) to increase the inventory level". How is this policy called? What is "s"?

Such a policy is referred to an (s, S) policy or a min max policy.Typically, s is referred to as the reorder point or the min and to S as the order-up-to level or the max.

How do we calculate the reorder level?

With:
L = replenishment lead time from the supplier to the distributor in days
AVG = average daily demand faced by the distributor
z = safety factor
STD = standard deviation of daily demand faced by the distributor

Explain the safety factor in statistics.

The safety factor z is chosen from the statistical tables to ensure that the probability of stock-outs during lead time is exactly 1 - α.

How do we modify the (Q,R) policy if inventory level is reviewed only periodically?

We use the (s, S) policy. We define two inventory levels. If inventory position falls below s, we order enough to raise the inventory position to S. We can use (Q, R) by setting s = R and S = Q + R.

What is the base-stock level?

A warehouse determines a target inventory level, the base-stock level, and each review period, the inventory position is reviewed.

When will service levels be higher?

For products with:

High profit margin
High volume
Low variability
Short lead time

The question on the page originate from the summary of the following study material:

Designing and Managing the Supply Chain | 9780071270977 | David Simchi Levi

View summary

A unique study and practice tool
Never study anything twice again
Get the grades you hope for
100% sure, 100% understanding

Remember faster, study better. Scientifically proven.

Topics that are related to Inventory Management and Risk Pooling - Single stage inventory

Inventory Management and Risk Pooling - Single stage inventory

8 important questions on Inventory Management and Risk Pooling - Single stage inventory

What is aggregate forecasts as more accurate an example of?

What is the trade-off when initial inventory is available?