A formula for establishing re-order quantities for individual items within a joint stock replenishment scheme

Abstract

A joint stock replenishment policy is an inventory control strategy under which groups of items—say, from a single supplier—are jointly re-ordered on a single order. There are many inventory situations where this is important. An economic order quantity is then fixed not for individual items, but for the item group as a whole. This leaves the problem of how much to order of any individual item within such a group. Simple proportioning methods will tend to maintain existing imbalances in the stock or can lead to over-ordering. This paper derives a practical formula, which applies to all situations, always orders the correct amount and will tend to continuously balance stocks.