Two-tier inventory control

Two-tier inventory control
See also
Buffer inventory Optimum size of the order Scrap rate Maximum stock level Types of inventory Contract logistics Production capacity Inventory management techniques Safety stock

Stocks can be kept on two levels: central warehouse and district store.

Maintaining a two-tier stocks minimizes the total inventory of the material, while maintaining the same level of risk of a run out in one of the sub-stores, district stores (i.e. the point directly serving the client's needs).

Examples of structures that use a two-tier inventory control can be:

• traders - have their own warehouses and a network of retail stores,
• service company - with many repairs ships, with components supplied from a central store.

In the central warehouse inventories goods with relatively constant intensity of demand, as well as a short shelf life should be kept. They must be getting straight to the stores, from which they go directly to the customer. An example would be bread. In contrast, products such as coffee, tea, alcohol can only be in certain amounts stored in the central warehouse.

District stores and warehouses collects safety stock, which cover the demand higher than forecasted demand. The amount of such reserve stock can be determined by the formula:

• $Zr=k{\sqrt {l{\bar {y}}}}$

where:

• k - the safety factor, i.e. size resulting from the tolerable risk of stocks depletion.
• l - the average time elapsed from the occurrence of the need for the coming deliveries from the central warehouse (in units of time, used to measure demand)
• y – the average value of demand for particular product.

See also:

• Logistic audit

References

• DeCroix, G. A., & Zipkin, P. H. (2005). Inventory management for an assembly system with product or component returns. Management Science, 51(8), 1250-1265.
• Magee, J. F., & Boodman, D. M. (1967). Production planning and inventory control.
• Smaros, J. and Holmstrom, J. (2000), "Viewpoint: reaching the consumer through grocery VMI", International Journal of Retails & Distribution Management, Vol. 28 No. 2, p. 55–61
• Tersine, R. J. (1994). Principles of inventory and materials management.