Inventory policies: when and how much to order
A policy is a simple rule that answers two questions — when do I order, and how much. Different rules fit different products.
- Demand served
- 100%
- Days out of stock
- 0
- Average stock
- 262 units
- Days of cover
- 13
- Orders placed
- 6
- Units lost
- 0
Every product on your shelves follows a rule, even if nobody wrote it down. A policy makes that rule explicit: it says when to place an order and how much to ask for.
The stage above plays 120 days of a product selling about 20 units a day. Watch the green line: it drops as customers buy, and jumps back up when a truck arrives. That saw shape is the life of every item in your warehouse.
The danger zone is the gap between ordering and receiving. While the truck is on the road, stock keeps falling. If the order goes out too late, or the supplier is slow, the shelf goes empty and you lose the sale — the red bands.
Which policy for which product?
Combine the value of the product (ABC) with how predictable it is (XYZ). Click a cell to load that kind of product in the simulator.
Try this
What to remember
- Every policy answers two questions: when to order and how much.
- Stock must cover demand during the lead time — the longer or less reliable the supplier, the higher the reorder point.
- Bigger orders mean fewer purchase orders but more money sitting on the shelf.
- Periodic review needs more stock than daily watching, but lets you group products into one order per supplier.
- Use ABC-XYZ to choose: tight daily control for A items, simple periodic rules for C items.