Criterion for choosing ordering policies between fixed-size and fixed-interval, pull-type and push-type

Abstract

There are many difficulties in comparing different types of inventory control policies because much of the research on inventory control has been developed and accumulated on these types independently. The main purpose of this paper is to discuss how we choose and adapt these types of systems to various circumstances. In this paper firstly we show that we can obtain a theoretical criterion for choosing between fixed-size ordering and fixed-interval ordering policies. We propose a way to compare these two systems by focusing attention on the determining process of the level of safety stock. The main result is as follows: the level of safety stock can be lowered by the fixed-interval ordering system when the variance of forecast error is small relative to the variance of demand, and the reverse is the case when the variance of forecast error is large relative to the variance of demand. Secondly, by applying the same approach we derive a theoretical criterion for choosing between the pull-type ordering and the push-type ordering policies. The main result we get is as follows: we can reduce the level of safety stock with the push-type ordering system when the variance of forecast error is small relative to the variance of demand, otherwise the pull-type ordering system would be more effective.