Introduction If there is no evidence of trend or seasonal effects then forecasting using demand history alone usually simply involves estimation of the demand rate (mean demand per unit time). All of the algorithms mentioned in this article can be used as a basis for forecasting involving trend and seasonal effects. The performance of each […]

## What is Optimal Replenishment?

Introduction Claims that particular software packages provide optimal inventory management are commonplace. Such claims, by themselves, are meaningless. They only become meaningful if there is a full description of the theoretical assumptions involved and of the objective function (whatever is to be minimised or maximised). Total Cost as the Objective Function Total cost is […]

## Replenishment Cycle

Consider what I will refer to as the “net quantity” of an item which is the quantity on hand plus the quantity on supplier order minus the quantity on customer back order. Reordering takes place when the net quantity falls strictly below a level known as the reorder point (ROP). Notice that reordering does not […]

## Evaluating Forecasting Algorithms

Introduction In order to determine when and how much of an item to order, it is necessary to have a forecast of customer demands. The human brain is not as good as appropriate statistical analysis at interpreting statistical data. Forecasting of customer demands using demand history alone is, therefore, better done by a computer using […]

## ABC Analysis

Pareto Principle The Pareto Principle is named after an Italian economist Vilfredo Pareto who noticed that 80% of the peas which he grew in his garden came from about 20% of the pods. He also found that, in most countries, about 20% of the population owns 80% of the land. Those observations led to what […]

## Active Inventory

Active inventory is inventory which will probably be sold or used in the reasonably near future. How far into the future depends on how soon you are hoping to see the expected improvements. The reason for finding out how much active inventory there is is that only active stock can be reduced, in the near […]

## Contact Form Problem Fixed

I discovered that the contact form has not been working. I have not been receiving messages from it. The problem has now been fixed. If you have tried to send me a message using the form then please do so again. I should receive it this time. Please accept my apologies for the inconvenience.

## Reducing Reorder Review Periods

When the computer ascertains which items should be ordered now, that is called a “reorder review”. This is often done for a single supplier at a time in preparation for sending an order to the supplier for a number of items. The amount of time between these reorder reviews is called the “reorder review period”. […]

## Days Cover

Converting a quantity (e.g. stock on hand) to the number of days cover it provides is not quite as simple as dividing the quantity by the average demand per day. Consider an item which moves, on average, once per year and which is out of stock. The fact that item is out of stock does […]

## Reducing Lead Times

Reducing effective lead times is a good starting point for improving inventory management. One reason is that most improvements in that regard do not require any computer programming. Another is that, even if there are major problems hindering the achievement of good inventory management, reducing lead times will reduce the impact of those problems. It […]