INVENTORY MANAGEMENT WITH PERIODIC ORDERING AND MINIMUM ORDER QUANTITIES

Periodic review systems are commonly employed by distributors and reta ilers to replenish their inventories (for example, to co-ordinate in-b ound transportation). It is also often the case that vendors specify m inimum purchase quantities for physical (for example, packaging) or st rategic reasons. When inventory systems recommend order quantities bel ow the prescribed minimum, a decision must be made on whether or not t o order. We describe how this environment can be modelled and employ a n extensive factorial experiment involving a simulation to demonstrate situations in which a common simple 'rounding up' decision rule perfo rms poorly, In this paper, we discuss financial implications and imple mentation issues.