A Stochastic Inventory Model for the Stock Versus Non-Stock Decision
Rappold, James A.
Yoho, Keenan D.
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The most fundamental decision in inventory management is whether or not to stock a particular item. Despite its importance, the preponderance of the literature on inventory systems is concerned with how much to order and when to order which assume the stocking decision has been made. In this research we examine an inventory stocking decision model that is based upon an item’s demand history. In this model every item must earn its way into the catalogue of stocked items by receiving a given number of demands over a specified time period and will likewise be de-stocked and taken out of the catalogue (or burned) if it receives fewer than a given number of demands over a specified time period. We show the stability of such a policy and discuss implications for its use by firms that compete on product assortment. This research should be of interest to the Department of Defense as well as commercial firms that have large numbers of items in their product catalogues.
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