Title: The new approach to inventory optimisation

Authors: Gennady L. Brodetskiy

Addresses: Department of Logistics, National Research University 'Higher School of Economics', 20 Myasnitskaya Ulitsa, Moscow 101000, Russia

Abstract: There is a hidden reserve for improving the efficiency of supply chains at inventory management. The aim of this research is to develop a special approach for optimisation of such systems with regard to the time value of money (TVM) according to the scheme of simple interest, and to modify the EOQ formula respectively. It is caused by the fact that in such models profits are not used to increase the total annual supply, and the interest rate for the calculation of the TVM should reflect the effectiveness of cash flow of supply chain itself. A new formula considering the TVM for EOQ is found. The analytical assessment of the interest rate, which characterises the supply chain efficiency and is applied in calculations with the use of the generalised EOQ formula, is given. The developed method allows to receive additional synergy effect the increase in profitability of a working capital.

Keywords: logistics management; inventory optimisation; time value of money; TVM; economic order quantity; EOQ; interest rate; cash flow effectiveness; cash flows; supply chain management; SCM; working capital; profitability; supply chain efficiency; inventory management.

DOI: 10.1504/IJLSM.2015.072282

International Journal of Logistics Systems and Management, 2015 Vol.22 No.3, pp.251 - 266

Received: 11 Jun 2014
Accepted: 08 Aug 2014
Published online: 08 Oct 2015 *

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