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Recursive Algorithm for finding Optimal Product Categories in Inventory Management

IP.com Disclosure Number: IPCOM000014758D
Original Publication Date: 2000-Jul-01
Included in the Prior Art Database: 2003-Jun-20

Publishing Venue

IBM

Abstract

Introduction In [1] p.21 describes the problem of optimal categories in inventory management. The overall optimal solution is to create a category for each product with its optimal order frequency. Normally an inventory contains several 10.000 products. So the overall optimal solution (with a large number of categories) never is useable is practice. The highest number of categories possible to administrate lies somewhere around 10. The problem is to find the optimal categories for a given maximal number of categories. Nowadays most inventory administrators use 3 categories result from ABC-analysis. A better approach is the K-curve method computing the optimal categories for a given set of order frequencies the inventory administrator wants to implement. Normally the input set of order frequencies is a geometrical sequence with factor 2. For special distibutions of the products in the inventoy the K-kurve method returns the optimal categories. ([1] p. 61 chap 4.3) The algorithm described here determinesd optimal categories without any preassumptions on the distribution of the products. Input is the size of the first or last category. The other categories are computed recursively. Optimal Categories