An Attempt Towards a Model Approach to the Total Cost of Stock Replenishment, Maintenance, Deficit and Excess
It is commonly assumed that random variability of demand in a stock replenishment cycle must be taken into account primarily from the perspective of service level (availability). It is related to the probability of occurrence of demand which is larger than assumed. In certain cases, however, the risk of occurrence of demand which is lower than assumed may be of significance. It leads to temporary stock excess causing specific consequences, including the ones pertaining to costs. The premise for discussing the subject was the fact that in presently applied models of costs related to stock renewal, the costs of stock deficit are taken into account in the first place, alongside stock replenishment and maintenance costs. They are calculated on the basis of dependencies defining the stock deficit occurrence probability in a replenishment cycle or expected stock deficit amount in a given cycle. The amounts depend on the parameters which control stock replenishment, and on the type of demand distribution. However, attention should be drawn to that fact that random variability of demand in a stock replenishment cycle is linked to the probability of occurrence of both higher and lower demand volumes. In the first case, there is a risk that a stock deficit might occur, which - as it has been indicated above - it is commonly taken into account. It is related to the notion of services level measured with stock availability. The second possibility (demand lower than expected) may, however, bring specific organisational and financial consequences. The article discusses them and presents a cost model comprehensively covering stock replenishment, maintenance, deficit and excess costs. (original abstract)
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