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Chapter 9
An Integr85
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Olli-Pekka Hilmola
Lappeenranta Univ. of Tech., Kouvola Unit, Prikaatintie 9, 45100 Kouvola, Finland
105106 Philip Hedenstierna, Per Hilletofth and Olli-Pekka Hilmola
Introduction
The purpose of inventory control is to ensure service to processes or customers in a
cost-efficient manner, which means that the cost of materials acquisition is balanced
with the cost of holding inventory (Axs¨ater, 1991). This is done by interpreting data
describing the planning environment, . the parameters that may affect the deci-
sion, to generate replenishment order times and quantities (Mattsson, 2004). The
performance of an inventory control system may then be measured by the service
and the total cost caused, when applied in a certain environment. Inventory control
methods may be classified by whether they determine ordering timing, quantity, or
both (Mattsson and Jonsson, 2003). For systems that determine only one aspect,
such as the reorder point system or the periodic ordering system, the undetermined
aspect must be calculated beforehand, typically using the economic order quantity
or the corresponding economic inventory cycle time (Waters, 2003). The parameters
that inventory control systems are typically including such things as demand fore-
casts, projected lead times, holding rates and ordering costs. Of these, the forecast
is of special concern, as it is not a part of the planning environment, but a product
thereof. This makes forecasting, given our definition of inventory control, an inte-
gral part of the inventory control system. To maintain service when there is forecast
and lead time variability, safety stock is used, which is based on variability and on
the uncerta
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