Inventory rotation policies for slow moving items

John W. Bradford, Paul Sugrue

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

In this article we present a stochastic model for determining inventory rotation policies for a retail firm which must stock many hundreds of distinctive items having uncertain heterogeneous sales patterns. The model develops explicit decision rules for determining (1) the length of time that an item should remain in inventory before the decision is made on whether or not to rotate the item out of inventory and (2) the minimum sales level necessary for retaining the item in inventory. Two inventory rotation policies are developed, the first of which maximizes cumulative expected sales over a finite planning horizon and the second of which maximizes cumulative expected profit. We also consider the statistical behavior of items having uncertain, discrete, and heterogeneous sales patterns using a two‐period prediction methodology where period 1 is used to accumulate information on individual sales rates and this knowledge is then used, in a Bayesian context, to make sales predictions for period 2. This methodology assumes that over an arbitrary time interval sales for each item are Poisson with unknown but stationary mean sales rates and the mean sales rates are distributed gamma across all items. We also report the application of the model to a retail firm which stocks many hundreds of distinctive unframed poster art titles. The application provides some useful insights into the behavior of the model as well as some interesting aspects pertaining to the implementation of the results in a “real‐world” situation.

Original languageEnglish (US)
Pages (from-to)87-105
Number of pages19
JournalNaval Research Logistics (NRL)
Volume38
Issue number1
DOIs
StatePublished - Jan 1 1991

Fingerprint

Sales
Maximise
Methodology
Prediction
Decision Rules
Accumulate
Stochastic Model
Profit
Horizon
Siméon Denis Poisson
Planning
Policy
Model
Unknown
Interval
Necessary
Stochastic models
Arbitrary
Profitability
Business

ASJC Scopus subject areas

  • Modeling and Simulation
  • Ocean Engineering
  • Management Science and Operations Research

Cite this

Inventory rotation policies for slow moving items. / Bradford, John W.; Sugrue, Paul.

In: Naval Research Logistics (NRL), Vol. 38, No. 1, 01.01.1991, p. 87-105.

Research output: Contribution to journalArticle

Bradford, John W. ; Sugrue, Paul. / Inventory rotation policies for slow moving items. In: Naval Research Logistics (NRL). 1991 ; Vol. 38, No. 1. pp. 87-105.
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