Setting stock levels for wholesaling: Performance measures and conflict of objectives between supplier and stockist

Abstract The situation considered is that where a sales outlet holds a stock of goods for sale which are topped up by regular weekly deliveries. Demand is highly variable and ranges from high to very low over the many items held in stock. An appropriate stock system to use in these circumstances is an ‘order-up-to’ policy but the problem is to set the right order-up-to levels for each item. Items which experience low demand require particular care. The mathematical model used for setting stock levels for these items has to allow for the possibility of stockouts occuring before the review time and not only in the period from review to delivery. The paper consideres various measures which are used for assessing the performance of sales outlets and the implications of these measures for setting stock levels. Some measures are shown to be very sensitive to the level of sales and also need to be used with care when making interbranch comparisons. A consideration of performance measures also brings out the potential for conflict of interest between supplier and stockist.