Closed-Loop Inventory Control

The attitude toward setting safety stock targets in much of the inventory management literature can be summed up by the memorable phrase of Ron Popeil, “Set it and forget it.” Unfortunately, what works for Ronco does not work in inventory planning. The calculation of the target inventory position depends on accuracy of the unbiased forecast, estimates of the demand coefficient of variation and distribution, and lead time estimates. These estimates are often wrong, which may lead to service-level targets that are under or overachieved. In other words, what if, after all the sophisticated efforts to set inventory policy parameters have been undertaken, the service-level targets are missed? What is to be done? Do you ...

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