Single-Level Inventory Policies
Inventory policies specify decision rules with respect to the point in time when a replenishment of the inventory should be initiated, as well as to the replenishment quantity that should be ordered from the supplying node in the supply network. If the supplying node is a production segment of the same company, then the replenishment order is filled after the flow time of a production order at the production node. If the supplying node is an inventory node located upstream in the supply network (an inventory node of the same company or an external supplier), then the replenishment order is filled from stock on hand, possibly after an inventory-related waiting time.
Inventory policies must be applied when no sufficient planning data are available that could be used to construct a deterministic production schedule based on the predicted development of the future demand. This is usually the case for spare parts or retail goods. The application of inventory policies is also proposed for B and C products,according to an ABC classification, in cases when capacity oriented, deterministic methods of constructing a production schedule are too costly or unavailable.
The inventory is supplied from a "source" which fulfills orders for the considered product after a certain replenishment lead time. If the source is a production segment or rather production stage of the same company, then the replenishment lead time is a function of the flow time of a production order and depends on numerous factors, the utilization of the production stage being one of them. If the source is another inventory node of the company, then the order is a demand observed by this inventory node and the replenishment lead time depends on the inventory available on hand as well as on the time required for material handling and transportation processes. If the source is an external supplier, then the replenishment lead time is equal to the customer order waiting time provided by the supplier, plus an additional time required for material handling and transportation. In all mentioned cases it is clear that the replenishment lead time may be subject to random variations.