Spreadsheet Implementable Inventory Control for a Distribution Center

Abstract

This paper develops and tests a simple procedure for establishing stocking rules for a multi-component distribution center that supplies spare parts for an equipment maintenance operation. Our basic formulation seeks to minimize inventory investment subject to constraints on average service level and replenishment frequency. We simplify this formulation by classifying parts according to a new ABC methodology and applying heuristics to the classical (Q,r) model that lead to closed-form expressions for the stocking parameters. Our numerical results show that: (1) the proposed ABC scheme does not introduce large errors provided that it is done in a manner that reflects the key parameters in the model, and (2) any of a number of simple reorder point heuristics can provide the basis for an effective spreadsheet implementable system for controlling inventory in a complex multi-component environment as long as the service level is checked against the exact formula.