ABSTRACT

This chapter outlines the basic concepts of stock-control theory which would apply, say, to the central store of a supermarket organization where production considerations are not involved. Decisions on stock levels are usually concerned with seeking the best economic compromise between conflicting objectives. The order quantity directly affects the average level of working stocks and the cost of holding these stocks. It affects the number of orders placed per annum and the cost of placing these orders. Large purchasing quantities result in high working stocks, but a low number of orders per annum. Small purchasing quantities result in low working stocks, but a high number of orders per annum. The costs of ordering primarily consist of the cost of raising the necessary paper-work and the clerical cost of purchasing and progressing orders. Safety stock is necessary to cover uncertainty in the numerical demand, in the lead time and in the quantity actually delivered.