The Effect of the Demand Changes on the Inventories and Costs

Abstract

When the future customer demands can be exactly quantified, the level of the closing stock, the quantity of the placed order and the actual date of the order can be clearly defined with the knowledge of the initial stocks, the production demand and the restocking of supplies. However, this initial condition is very rare in practice. There are several unpredictable factors influencing the stock level that will affect the operation of the production company. The objective of the logistics management is to guarantee the stock level required for the adequate handling of production at the lowest possible level of costs. The definition of the service level provides an opportunity to handle the fluctuation of demands due to different impacts with a predetermined safety, and to quantify the stock level required for the operation.