Sep - 16 - 2019

Simple Inventory Management - Part of the Business Philosophy White Papers Series

This paper examines a simple statistical method of managing inventory levels that allows the manager to establish confidence levels regarding product availability while maintaining the highest possible levels of available cash. The model is examined in detail without the need for training in statistics, and is supported by an Excel® spreadsheet that embodies the model. All of the statistical terms and concepts that are needed in order to understand the model are explained in plain English within the paper. The spreadsheet includes stock confidence levels and a cash analysis including inventory holding costs, cost of a lost sale, and gross profitability.

The spreadsheet also includes a Monte Carlo simulation of uncertain demand as a means of testing the inventory control methodology and of establishing expected available cash levels. Finally, the spreadsheet includes a section where various manual inventory control policies can be tested relative to the statistical model in order to establish the relative performance of each. The following graphic shows a comparison between the statistical method implemented in the model and a typical manual inventory control method.

The full paper is available here: Simple Inventory Management.pdf

And the spreadsheet is available here: Simple Inventory Management.xlsx

All Original Content Copyright 2014 Jon Bennett. All Rights Reserved.

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