Centralisation of Inventories and the “Square Root Law”

Introduction The purpose of this paper is to discuss the effect on inventory levels of centralisation, i.e., moving from a logistics system formed from a number of field warehouses to one where all demands are met from a single location. In particular, we shall examine the “square root law of locations”, a result which asserts that the total inventory in a system is proportional to the square root of the number of locations at which a product is stocked.