DESIGN OF A LOGIC TO SUPPORT LOGISTIC COST EFFICIENT PURCHASING DECISIONS FOR A HARDWARE WHOLESALER

Abstract

For trading companies, inventory is the primary enabler of value creation. Applying customer-friendly inventory management policies can constitute a competitive advantage that does, though, usually come along with increased costs. The consideration of costs during inventory related decision making is hence inevitable. For the purchasing of goods, inventory holding costs, ordering costs, and transportation costs need to be outweighed in order to reduce total logistics cost. Since existing economic order quantity calculations (EOQ) do not adequately consider the actual economies and diseconomies of scale that the joint replenishment problems is subjected to, a two-staged heuristic that also considers minimum order quantities and discounts on individual item level is proposed. The centrepiece of this heuristic is, though, the level of detail at which transportation costs are considered whilst simplicity is maintained. As the practicality of EOQ considerations is heavily dependent on schedule stability, a potential improvement of forecast accuracy and robustness by automatic pattern recognition is furthermore evaluated.