Production Operations

Management

Fundamentals of Inventory
Management
From EOQ to ROP G. Ioannou, Ph.D.
Associate Professor
 Agenda

Inventory Concepts

Economic Order Quantity (EOQ)

Quantity Discounts Model

Continuous Review System (Q-system)

Periodic Review System (P-system)

Comparison of P- and Q- systems

Hybrid Systems

2
 Definition - Types

Inventory is created when the receipt of materials, parts
or finished goods exceeds their disbursement.

The different types of inventory can be distinguished as:

 Raw Materials (RM)
 Work-in-process (WIP)
 Finished goods (FG)
 Spare parts (SP)

Each type has different attributes and, thus, requires a

different management policy.
3
 Pressures for Low Inventories

The primary reason for keeping inventories low is that inventory
represents a temporary monetary investment in goods on which a firm
must pay (rather than receive) interest.

Inventory holding (or carrying) cost is the variable cost of keeping items
on hand, including interest, storage and handling, taxes, insurance and
shrinkage.

When these components change with inventory levels, so does the
holding cost.

Companies usually state an items holding cost per period of time as a
percent of its value (it typically ranges from 20 to 40% of its value).

Suppose that a firms holding cost is 30%. If the average value of total
inventory is 20% of sales, the average annual cost to hold inventory is
6% (0.3x0.2) of total sales, which is sizable in terms of gross profit
margins, often less than 10%.

Therefore, the components of holding cost create pressures for low
inventories.
4
 Pressures for Low Inventories

Interest or Opportunity Cost
 To finance inventory, a company must obtain a loan or forgo the
opportunity of an investment promising an attractive return.
 Interest or Opportunity Cost, whichever is greater, usually is the
largest component of holding cost, often as high as 15%.

Storage and Handling Costs
 Inventory takes up space and must be moved into and out of
storage.
 Storage and handling costs may be incurred when a firm rents
space on either a long- or short- term basis.
 There is also an opportunity cost for storage when a firm could use
storage space productively in some other way.

5
 Pressures for Low Inventories

Taxes, Insurance and Shrinkage
 More taxes are paid if end-of-year inventories are high.
 Insurance on assets are increased when there is more to insure.
 Shrinkage takes three forms:

Pilferage: theft of inventory by customers or employees.

Obsolescence: inventory can not used or sold at full value because
of model changes, engineering modifications or unexpectedly low
demand.
Deterioration: physical spoilage or damage results in lost value.

6
 Pressures for High Inventories

Customer Service
 Creating inventory can speed delivery and improve on-time
delivery.
 Inventory reduces the potential for stock-outs and back-orders.
A Stockout occurs when an item that is typically stocked is not
available to satisfy a demand the moment it occurs, resulting in
loss of sale.
A backorder is a customer order that can not be filled when
promised or demanded but is filled later. Customers may be
willing to wait for a backorder but next time may take their
business elsewhere. Sometimes customers are given discounts
for the inconvenience of waiting.

7
 Pressures for High Inventories

Ordering Cost
 Each time a firm places a new order, it incurs an ordering cost,
or the cost of preparing a purchase order for a supplier or a
production order for the shop.
 For the same item, the ordering cost is the same, regardless of
the order size.
 The purchasing agent needs to take the time to decide how
much to order, select a supplier and negotiate terms. Time is
also spent on paperwork, follow-up and receiving. In the case of
a production order for a manufactured item, a blueprint and
routing instructions must often accompany the shop order.

8
 Pressures for High Inventories

Setup Cost
 The cost involved in changing over a machine to produce a
different component or item is the setup cost. It includes labour
and time to make the changeover, cleaning and new tools or
fixtures.
 Scrap or rework costs can be substantially higher at the start of
the run.
 Setup cost is also independent of order size.

9
 Pressures for High Inventories

Labor and Equipment Utilization
 By creating more inventory, management can increase workforce
productivity and facility utilization in three ways.
1. Placing larger, less frequent production orders reduces the number
of unproductive setups, which add no value to a product or service.
2. Holding inventory reduces the chance of costly rescheduling of
production orders because the components needed to make the
product are not in inventory.
3. Building inventories improves resource utilization by stabilizing the
output rate for industries when demand is cyclical or seasonal.
 The firm uses inventory built during slack periods to handle extra
demand in peak seasons and minimizes the need for extra shifts,
hiring, lay offs, overtime and additional equipment.

10
 Pressures for High Inventories

Transportation Cost
 Transportation costs can be reduced by increasing inventory levels.
 Having inventory on hand allows more carload shipments and minimizes
the need to expedite shipments by more expensive modes of
transportation.
 Combining orders of different items from same supplier may lead lead to
rate discounts, thereby decreasing the costs of transportation and raw
materials.

Payments to suppliers
 A firm often can reduce total payments to suppliers if it can tolerate higher
inventory levels, if for example it learns that a key supplier is about to
increase prices.
 A firm can also take advantage of quantity discounts, whereby the price per
unit drops when the order is sufficiently large.

11
 Economic Order Quantity
(EOQ)

Managers face conflicting pressures to keep inventories low enough
to avoid excess inventory holding costs but high enough to reduce
the frequency of orders and setups.

A good starting point for balancing these conflicting pressures and
determining the best cycle-inventory level for an item is finding the
Economic Order Quantity (EOQ).

EOQ is defined as the lot size that minimizes total annual inventory
holding and ordering costs.

12
 EOQ Assumptions

When the following assumptions hold, the optimal EOQ can be
calculated analytically:
 The model can only be used for "independent" demand and instantaneous
production.
 The demand rate is constant and known beforehand.
 There are no constraints in terms of lot size.
 The only relevant costs are the inventory holding cost and fixed cost per lot
for ordering or setup.
 There is no uncertainty in lead-time or supply (immediate).

In reality, very few situations are so simple and well behaved.

Still, EOQ is a reasonable first approximation of average lot sizes.

13
 Calculating EOQ

To calculate the Economic Order Quantity:

1. Formulate the total cost for any lot size Q.

2. Derive EOQ, which is the Q that minimizes total
cost.
3. Convert EOQ into the elapsed time between
orders.

14
 Calculating EOQ

When the EOQ assumptions are
satisfied, cycle inventory behaves
as shown. Inventory depletion
Demand rate

On-hand Inventory

A cycle begins with Q units held in
Q
inventory, which happens when a
new order is received. Average
Q/2 cycle

During the cycle, on-hand inventory
inventory
is used at a constant rate.

Since demand is known with time
certainty and the lead time is a Receive Receive
Order Order
constant, a new lot can be ordered
so that inventory falls to 0 precisely 1 cycle
when the new lot is received.

15
 Calculating EOQ

Because inventory varies

Annual Cost, $
uniformly between Q and 0, the
average cycle inventory equals
half the lot size, Q. Holding Cost

The annual cost of holding

inventory increases linearly with
Q. Lot Size (Q)
Annual holding cost = (Average cycle inventory) x
(Unit holding cost)

Q
AHC = H
2
16
 Calculating EOQ

The average number of orders

Annual Cost, $
per year equals annual demand D
divided by Q. Ordering Cost

The total ordering or setup cost
decreases non-linearly as Q
increases, because fewer orders
are placed.
Lot Size (Q)
Annual ordering cost = (Number of orders / year) x
(Ordering or Setup cost)

D
AOC = S
Q 17
 Calculating EOQ

Total cost = Annual holding cost + Annual ordering or setup cost

Where: Q D
C = H + S
C = total cost per year 2 Q
Q = lot size in units
H = cost of holding one unit in
inventory for a year, often Annual
calculated as a proportion of Cost
the items value.
D = annual demand in units per year
S = cost of ordering or setting up one Lot size (Q)
lot, in dollars per lot.
18
 Calculating EOQ
Q D dC
C = H + S =0
2 Q dQ
Q D
d( H + S) SD H
2 Q 2 + =0
=0 Q 2
dQ
2 DS SD H
EOQ = 2
d ( 2 + )
H d TC Q 2 2SD
2
= = >0
dQ Q H 19
 EOQ Reality

Everybody uses it

Why?
 It is simple
 It is robust (100% error in demand value, only 25%
error in total cost!!!)
 It is embedded in all ERP and ex-MRP systems
 Holding and set-up costs are fairly insensitive to lot
size

20
 EOQ Example

The Heat International Company produces air-conditioners.

The air conditioning units it requires to this purpose are handled as
independent demand.

The production can be assumed stable, as the company implements a Make-
To-Stock policy (production continues normally during winter months).

The demand rate for such air-conditioning units is 500 units per week.

The air-conditioning units supplier charges 0.3 per unit, while the cost of
placing a purchase order is 10.

The annual cost of holding an air-conditioning unit in inventory is 25% of its
value.

If the company orders 5,000 units when its inventory is exhausted, what is the
total cost?

How many air-conditioning units and how often should the company order to
minimize its total cost?

21
 EOQ Example

The total annual demand for air-conditioning units is:
D= (500 units / week) x (52 weeks / year) = 26,000 units /year

The annual inventory holding cost for one air-conditioning unit is:
= 0,25 (0.3 / unit) = 0.075

The total cost for ordering 5,000 units, thus, derives:
Q D 5000 26000
C= H + S = 0.075 + 10 = 239.5
2 Q 2 5000

The Economic Order Quantity becomes:

2 DS 2 26000 10
EOQ = = 2633 units
H 0,075

22
 EOQ Example

The annual cost for ordering EOQ (2633 units) becomes:

Q D 2633 26000
C = H + S = 0.075 + 10 = 197.48
2 Q 2 2633

The time between successive orders (expressed in weeks) is:

EOQ 2633
TBOEOQ = (52weeks / year ) = 52 5,26weeks
D 26000

23
 Quantity Discounts Model

Discounts offerings with quantity
constitute motives for ordering higher
quantities and, hence, holding larger
inventories. EOQ 4

The price does not remain constant, EOQ 3.5
EOQ 3
as in the EOQ model, but varies along C for =4
with the ordering quantity. C for = 3.5

Total Cost

Therefore, it becomes crucial to find C for = 3
the trade-off between price discount
and cost increase due to keeping PD for

=$4 PD
for
larger inventory. =$3.5 PD
for

The total annual cost needs to =$3
incorporate except for the inventory 100 200 300 Q
holding cost and ordering (or setup)
cost the purchase cost of the
materials studied. Q D
C = H + S + P D

The total cost becomes: 2 Q 24
 Quantity Discounts Model

In order to determine the optimum lot size in the case of discounts

proportional to the quantity ordered, the following approach should
be followed:

 Calculate EOQ, starting from the lowest price to the next higher price.
 Check for feasibility (EOQ within the volume range from the respective
price).
 If the first feasible EOQ is found for the lowest price, it is optimal.
 Otherwise, calculate total cost for the first feasible EOQ and the larger
price break quantity at each lower price level.

25
 Quantity Discounts - Example

The retailer of Heat International is negotiating the air-conditioning
units respective purchase cost along with the quantity ordered.

Heat International offers the discounts summarized in the table
provided below:
Quantity Price /Unit
0 - 299 60
300-499 58,8
500- 57

The total demand for air-conditioning units is 6,500 units.

Ordering cost is 50 and the annual inventory holding cost is estimated
25% of the units price.

How many air-conditioning units should the retailer order to minimize its
total annual cost?

26
 Quantity Discounts - Example

For the lowest price:

2 DS 2 6500 50
EOQ57 = = = 213.57 < 500
H 0.25 57

For the next price:
2 DS 2 6500 50
EOQ58.8 = = = 210.28 < 300
H 0.25 58.8

For the last price:

2 DS 2 6500 50
EOQ60 = = = 208,16
H 0,25 60
27
 Quantity Discounts - Example

The total cost for EOQ is:
Q D 208 6500
C208 = H + S + PD = 0.25 60 + 50 + 60 6500 = 393,122.5
2 Q 2 208

The total cost when ordering 300 units:

300 6500
C300 = 0.25 58.8 + 50 + 58.8 6500 = 385,488.3
2 300

The total cost when ordering 500 units:

500 6500
C500 = 0.25 57 + 50 + 57 6500 = 374,712.5
2 500

Since 374,712.5 is the minimum total annual cost, the optimum ordering
quantity is 500 units. 28
 Inventory Control Systems

An Inventory Control System answers to the questions:
 How much should we order?
 When should we order?

In selecting an inventory control system for a particular application, the
nature of the demands imposed on the inventory items is crucial.

An important distinction between types of inventory is whether an item is
subject to dependent or independent demand.
 Independent demand is influence by external market conditions and is not
related to the inventory decisions for any other item held in stock.
 Dependent demand is required as components or inputs to a product or
service.

Inventory control systems for independent demand inventory is the area we
focus in the following slides.

29
 Continuous Review System
(Q)

A continuous review (Q) system or reorder point
(ROP) system or fixed order-quantity system tracks the
remaining inventory of an item each time a withdrawal is
made to determine whether it is time to reorder.

In practice, these reviews are done frequently (e.g. daily)
and often continuously (after each withdrawal).

At each review a decision is made about an items
inventory position.

If it is considered to be too low, the system triggers a new
order.

30
 Continuous Review System
(Q) definitions

On-hand inventory OH = inventory count

Schedule receipts SR = supplier orders expected

Backorders BO = customer orders not yet filled

The Inventory Position (IP) measures the items ability
to satisfy future demand.

It includes Scheduled Receipts (SR) plus On-Hand
inventory (OH) minus backorders (BO).

IP=OH+SR-BO
31
 Continuous Review System
(Q)

When the inventory position reaches a predetermined
minimum level, called the Reorder point (R), a fixed
quantity Q of the item is ordered.
 Reorder point R = minimum allowed IP =
Average demand during supplier lead time

In a continuous review system, although the order quantity
Q is fixed, the time between orders can vary (it can be
based on the EOQ, a price break quantity, a container size,
or some other quantity selected by management).

Reorder point is a predetermined quantity of inventory.
 It needs to be sufficient to cover the demand during the lead
time (the time interval between an order placement and an
order delivery).
32
 Continuous Review System
(Q) The Case of Deterministic Demand

The downward-sloping line
represents the on-hand inventory,
which is being the depleted at a
order
constant rate. delivery

When it reaches reorder point R

inventory

(the horizontal line), a new order for
Q units is placed.

The on-hand inventory continues to
drop throughout lead time L until the
order is received. R

order

At that time, which marks the end of
time
the lead time, on-hand inventory L L L
jumps by Q units. TBO TBO TBO

A new order arrives just when
inventory drops to 0.

The time between orders (TBO) is
the same for each cycle.
33
 Continuous Review System
(Q) The Case of Deterministic Demand

The inventory position IP corresponds to the on-hand inventory, except
during the lead time.

Just after a new order is placed, at the start of the lead time, IP increases
by Q, as shown by the dashed line.

The IP exceeds OH by this same margin (Q) throughout the lead time.

A possible exception is the situation when more than one scheduled
receipts is open at the same time, because of long lead times.

At the end of the lead time, when the scheduled receipts convert to on-
hand inventory, IP=OH once again.

The key point here is to compare IP, not OH, with R in deciding whether to
re-order or not.

34
 Continuous Review System
(Q) The Case of Stochastic Demand

In reality, demand and lead times are not always predictable.

This situation gives rise to the need for safety stocks.

In this case, reorder point equals the average demand during lead time plus
the safety stock.

The variability in lead times is assumed
order
delivery negligible.
inventory

The wavy downward-sloping line

indicates that demand that varies from
day to day.

Its slope is steeper in the second cycle,

RR which means that the demand rate is
order higher during this time period.
L1 L2 L3
The changing demand rate means that
time
1 2 2 33 the time between order changes, so
TBO1 TBO2 TBO3 35
 Continuous Review System
(Q) The Case of Stochastic Demand

Because of uncertain demand, sales during lead time are unpredictable, and
safety stock is added to hedge against lost sales.

This addition is why R is higher when demand is assumed stochastic in
comparison with when demand is assumed deterministic.

It also explains why the on-hand inventory usually drops to 0 by the time a
replenishment order arrives.

The greater the safety stock, and thus the higher reorder point R, the less
likely a stockout.

Because the average demand during lead time is variable and uncertain, the
real decision to be made when selecting R concerns the safety stock level.

Deciding on a small or large safety stock is a trade-off between customer
service and inventory holding costs.

Cost minimization models can be used to find the best safety stock, but they
require estimates of stock-out and backorders cost, which are usually difficult
to make with any precision.

The usual approach for determining R is to set a reasonable service-level
policy for the inventory and then determine the safety stock level that satisfies
this policy. 36
 Continuous Review System
(Q) The Case of Stochastic Demand

One way to determine the safety stock is to set a service level, or cycle service
level.

The service level is defined as the probability of not running out of stock in any
one ordering cycle, which begins at the time an order is placed and ends when
it arrives in stock.

In a continuous review system the stockout risk that occurs only during lead
time is greater than the overall risk of stockout, because this risk is nonexistent
outside the ordering cycle.

In order to translate this policy into a specific safety stock level, the demand
distribution must be known.

Indeed, its variability plays a major role. It is measured with probability
distributions, specified by a mean and variance.

When selecting the safety stock, the inventory planner often assumes that
demand during lead time is normally distributed.

37
 Continuous Review System
(Q) The Case of Stochastic Demand
service
level
average demand =85% probability
during of not satisfying
lead time demand=
100-85=15%
R
zL

Safety stock is computed by multiplying the number of standard
deviations from the mean needed to implement the cycle-service level z
by the standard deviation of demand during lead time probability
distribution L:
Safety stock = zxL

The higher the value of z, the higher the safety stock and the cycle-
service level should be.

If z=0, there is no safety stock and stockouts will occur during 50% of the
order cycles. 38
 Q system Example (1)

Heat International retailer has observed that the demand for air-
conditioning units is not exactly deterministic, but presents a level of
uncertainty.

Following a relevant study, it has been found that the demand for air-
conditioning units during lead time has an average of 100 units and a
variance of 12.

How much units should Heat International keep in safety stock to
ensure that the service level is 99%?

What should the reorder point be?

39
 Q system Example (1)
1. Calculate z
z is the number of standard deviations to the right of average demand during
lead time that places 99% of the area under the curve to the left of that point
(0.9900 in the table of Normal Distribution).
The closest number in the table is 0.9901, which gives value of 2.33.
2. The safety stock becomes:
Safety stock = zxL = 2.33x12=27.96 or 28 units.
3. The reorder point is calculated as following:
Reorder point = Average demand during lead time + Safety stock
R = 100+28 = 128 units

40
 Continuous Review System
(Q) The Case of Stochastic Demand

In case average demand during the lead time and the standard deviation of
demand during the lead time are not directly available:

If
 The average demand d and the standard deviation of demand t over some
time interval t not equal to the lead time L are known
 The probability distributions of demand for each time interval t are identical and
independent of each other.
 The lead time L is expressed in terms of the time interval t

Average demand during the lead time is the sum of the averages for each of
the L identical and independent distributions of demand, or d+d++d=dL

The variance of the demand distribution for the lead time is the sum of the
variances of the L identical and independent distributions of demand, or t2+
t2+...+ t2 = t2L

The standard deviation of the demand distribution for the lead time is the
square root of the sum of their variances, or L = t2 L = t L
41
 Q system Example (2)

Heat International retailer has observed that the demand for
air-conditioning units has an average of 125 units per week
and a standard deviation of 15 units per week.

The lead time between an order placement and order delivery
is 4 weeks.

The inventory holding cost of one air-conditioning unit for the
retailer is 10, while the cost of placing an order is 50.

How much inventory should the retailer keep in safety stock to
satisfy a service level of 90%?

How often should the retailer place an order and how many
air-conditioning units should he order?

42
 Q system Example (2)

The standard deviation of the demand distribution for the lead time is:
L = t L = 15 4 = 30

From the tables of Normal Distribution for a service level of 90%, z = 1.28.

Safety stock, thus, derives as:
Safety stock = z x L = 1.28 x 30 = 38.4 or 39 units

The reorder point becomes:
Re order point = Average demand during lead time + safety stock
R = 125 x 4 + 39 = 539 units

The annual demand is D = 125 units / week x 52 weeks = 6500 units

Economic Order Quantity:
2 DS 2 (52 125) 50
EOQ = = 255
H 10

Therefore, anytime the inventory drops to 539 units, the retailer needs to place
an order for 255 units.

43
 Periodic Review System (P)

An alternative inventory control system is the Periodic review system
(P) or fixed interval reorder system or periodic reorder system.

In the periodic review system (P) an items inventory position is
reviewed periodically rather than continuously.

Such a system can simplify delivery scheduling, because it establishes
a routine.

A new order is always placed at the end of each review and the time
between orders (TBO) is fixed at P.

Demand is a random variable. So, demand between reviews varies.

In a P system, the lot size Q may change from one order to the next,
but the time between orders is fixed.

44
 Periodic Review System (P)

From the original EOQ assumptions the following are maintained:
 There are no constraints on the size of the lot
 Decisions for one item are independent of decisions for other items
 There is no uncertainty in lead times or supply.

The downward-sloping line represents on-hand
inventory.
inventory

order
When the predetermined time P has elapsed since

delivery
the last review, an order is placed to bring the

inventory position, represented by the dashed line, up
Q1
1 Q2 Q3 to the target level T.
1
2
The lot size for the first review is:
3 Order placed Q1=T -IP1.
L L L Time
As with Q system, IP and OH differ only during lead
P P
time.
Protection Interval

When the new order arrives, at the end of the lead
time, IP and OH are identical.
45

Lot sizes vary from one cycle to the next.
 Periodic Review System (P)

To run a P system, managers must decide on the length of time between
successive reviews P and the target inventory level T.

The time between intervals P can be any convenient time (e.g. each Friday or every
other Friday) or TBOEOQ or TBO based on any other inventory system.

An order must be large enough to make the inventory position IP last beyond the
next review, which is P periods away.

The checker must wait P periods to revise, correct and reestablish the inventory
position.

Then a new order is placed, but it does not arrive until after the lead time L.

Therefore, the time interval for which inventory must be planned when each new
order is placed (protection interval) is P+L periods.

This longer protection interval is a fundamental difference of P-system with Q-
system.

This longer protection interval additionally induces the need for higher safety stock.

Therefore, the target inventory level T derives as:
T = d(P+L) + (Safety Stock for protection interval) or
T = d(P+L) + zP+L= d(P+L) + z t P + L
46
 P System Example

Heat International retailer sells a specific air-conditioning unit with a demand
rate of 125 units per week with a standard deviation of 15 units.

The lead time (time interval between order placement and order delivery) is 4
weeks.

How much inventory should the retailer keep in safety stock to satisfy a 90%
service level?

How often should the retailer place a new order and how many air-conditioning
units should be ordered each time?

What happens if Heat International retailer uses a periodic review system,
instead of the continuous review system initially assumed?

Please compare the two systems.

47
 P System Example

The annual demand is: D = 125 units / week 52 weeks (per year) = 6500 units.

The length of time between reviews is:
P = (EOQ/D)x52 weeks = 255 / 6500x52 = 2.04 2 weeks

The standard deviation for the protection interval P+L is:

P + L = L P + L = 15 2 + 4 37

For a service level of 90%, z = 1.28.

Therefore, the target inventory level T becomes:

T = d(P+L) + (Safety Stock for protection interval) =

= d(P+L) + z P+L = (125x6) + 1.28x37 = 797.36 or 798 units

In the case of P-system, the safety stock held is 47 (=1.28x37) units, which is
larger than the safety stock held in the case of Q-system (39 units).

48
 P-system advantages

1. Administration of the system is convenient, because

replenishments are made at fixed intervals.
2. Order for multiple items from the same supplier may be
combined into a single purchase order. This approach
reduces ordering and transportation costs and may
result in a price break from the supplier.
3. The inventory position needs to be known only when a
review is made and not continuously.

49
 Q-system advantages

1. The review frequency of each item may be

individualized. Tailoring the review frequency to the item
can reduce total ordering and holding costs.
2. Fixed lot sizes, if large enough, may result in quantity
discounts. Physical limitations, such as truckload
capacities, materials handling methods and furnace
capacities also may require a fixed lot size.
3. Lower safety stocks result in savings.

50
 Hybrid Systems

Various hybrid inventory control systems merge some but not all the features
of P and Q systems.

Optional Replenishment system
A system used to review the inventory position at fixed time in intervals and, if
the position has dropped to (or below) a predetermined level, to place a
variable-sized order to cover expected needs. The new order is large enough to
bring the inventory position up to a target inventory, similar to T for P-system.
Still, orders are not placed after a review unless the inventory position has
dropped to the predetermined minimum level (acts as the reorder point R in Q-
system).

Base-Stock system
A system that issues a replenishment order Q each time a withdrawal is made,
for the exact amount of the withdrawal. This one-for-one replacement policy
maintains the inventory position at a base-stock level equal to expected
demand during lead time plus safety stock (acts as reorder point in Q system).
However, order sizes now vary to keep the inventory position at R at all times.
Since this position is the lowest IP possible that will maintain a specified service
level, the base-stock system may be used to minimize cycle inventory.
51