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Part Three
Planning and control
Figure 12.4 (a) Single-stage, (b) two-stage, (c) multi-stage and (d) multi-echelon inventory systems
The volume decision – how much to order
To illustrate this decision, consider again the example of the food and drinks we keep at
our home. In managing this inventory we implicitly make decisions on order quantity,
which is how much to purchase at one time. In making this decision we are balancing two
sets of costs: the costs associated with going out to purchase the food items and the costs
associated with holding the stocks. The option of holding very little or no inventory of food
and purchasing each item only when it is needed has the advantage that it requires little
money since purchases are made only when needed. However, it would involve purchasing
provisions several times a day, which is inconvenient. At the very opposite extreme,
making one journey to the local superstore every few months and purchasing all the provisions
we would need until our next visit reduces the time and costs incurred in making the
purchase but requires a very large amount of money each time the trip is made – money