Material theory (or more formally the mathematical theory of inventory and production) is the sub-specialty within operations research and operations management that is concerned with the design of production/inventory systems to minimize costs: it studies the decisions faced by firms and the military in connection with manufacturing, warehousing, supply chains, spare part allocation and so on and provides the mathematical foundation for logistics.
Large orders will increase the amount of inventory on hand, which is costly, but may benefit from volume discounts.
Frequent orders are costly to process, and the resulting small inventory levels may increase the probability of stockouts, leading to loss of customers.
For example, having the needed merchandise on hand in order to make sales during the appropriate buying season(s).
And the wholesale market is not perfect; there can be considerable delays, particularly with the most popular toys.
If there is a six-week, or more, delay for customers to receive merchandise, some sales will be lost.
A further example is a restaurant, where a considerable percentage of the sales are the value-added aspects of food preparation and presentation, and so it is rational to buy and store somewhat more to reduce the chances of running out of key ingredients.
The situation often comes down to two key questions: confidence in the merchandise selling, and the benefits accruing if it does?
A third issue comes from the view that inventory also serves the function of decoupling two separate operations.
in an optimal way, i.e. to minimize Many other features can be added to the model, including multiple products (denoted
Inventory models can be based on different assumptions:[1][2] Although the number of models described in the literature is immense, the following is a list of classics: Classic books that established the field are: Many university courses in inventory theory use one or more of the following current textbooks: