An approach to establishing a method for calculating inventory

In periodic review inventory systems, inventory is classified into cycle stock and safety stock. Cycle stock is defined as inventory that absorbs differences between supply and demand frequencies. It can be calculated without deficiency or excess because a method has been established for ensuring that the minimum on-hand inventory during a periodic review is zero. Safety stock is defined as inventory that absorbs various differences between supply and demand. Unlike for cycle stock, a method for calculating safety stock without deficiency or excess remains to be established. An approach is proposed to establishing a method for calculating inventory in which inventory is classified on the basis of the holding purpose and the calculation factors indicate solutions. This approach was applied to inventory held to absorb, on the basis of fluctuations in demand, the difference in terms of time and quantity between supply and demand. Stock held for this purpose is referred to as ‘fluctuation stock’. The objective is to establish a method for calculating fluctuation stock so that the minimum on-hand inventory during a periodic review is zero and to clarify the relationship between fluctuation stock and safety stock.