Reconstructing inventory management theory

Abstract

PurposeThis paper sets out to discuss practical inventory control systems. Orthodox theory revolves around the purchaser and balances ordering costs against charges for carrying goods in stock. However, for any company holding thousands of different items the directives for constructing the best system(s) are confusing and the logic seems inconsistent. The research objective is to clarify this hitherto unsatisfactory situation and to provide robust guidelines for managing such inventories.Design/methodology/approachA small number of published examples are described in sufficient detail to reveal what these firms actually do. Each case is dissected to uncover management's motives, since the original reports were not embellished with useful analytical comments. The aim is to reconstruct the overall design process.FindingsThe myopic standpoint of established models neglects the impact of various ordering policies at the supplier's end, where the promotion of cost‐effective and responsive warehouse and transport operations is paramount. As a rule, both areas benefit from stable resources planning, based on cyclic orders and delivery schedules along fixed vehicle routes.Practical implicationsAn alternative “top down” approach is proposed. The main thrust is the efficient deployment of a designated transport fleet. Also, some salient points are made concerning the relative merits of P‐ and Q‐type stock replenishment modes.Originality/valueThe paper provides a new perspective on stock control that brings theory into line with modern supply chain management concepts.