Minimizing Customer Line Items Backordered in Inventory Control

This paper considers the theory and application of an alternative measure of stock-out cost in inventory control. Instead of recording the number of units of a product which are backordered, in certain situations it is appropriate to focus on the number or percentage of customer line items (requests for a particular item) which are backordered. By combining an approximate backorder cost per customer line item backordered with the usual ordering and carrying costs, an approximately optimal reorder point (or safety stock) formula is derived. The formula is applied to a stratified sample of 500 products from an actual inventory system, and an estimated 13% reduction in customer line items backordered is obtained with no increase in total inventory investment.