Application of Discrete Variable Servo Theory to Inventory Control

Abstract

Until recently the bases for designing inventory control systems have been poorly understood. This paper discusses the application of discrete variable servo theory to the analysis of inventory control systems, using the simplest periodic inventory replenishment case as an example. The objective is to design an inventory control scheme which will minimize the variance of the inventory balance subject to imposed conditions. A reorder rule is derived and shown to give minimum inventory variance. The “obvious” reorder rule derived is one of several observed in practice in situations approximating the simple case The dependence of the inventory level variance on the sales forecast error and system constants is stated explicitly. The principles and methods illustrated are applicable to more complex types of discrete control systems. Operations Research, ISSN 0030-364X, was published as Journal of the Operations Research Society of America from 1952 to 1955 under ISSN 0096-3984.