Computation of Optimum Re-order Levels and Quantities for a Re-order Level Stock Control System

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Abstract
The purpose of this article is to present a method of calculating optimum re-order levels and quantities for a re-order level stock control system where the criterion of optimality is the minimization of total expected cost. Many solutions to this, and similar, stock control problems exist in the literature; however, most of these incorporate approximations which simplify the mathematics, but give rise to non-optimal solutions for certain values of the basic parameters. The method described here enables optimum policies to be evaluated reasonably quickly for any item for which the basic parameters can be estimated. In the article we give the mathematical formulation and solution of the problem, together with a computing routine which finds optimum policies.

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