Here is a simple example
Product A and Product B both sells 900 units per week.
Product A is sold in 3 stores while product B is sold in 6 stores.
Each store vary in distance from the warehouse or distribution center
Legend:
Near - requires only 14 days of on hand inventory since it is near and can be replenished easily
medium - requires 21 days of on hand inventory and is harder to replenish
Far - requires 28 days of on hand inventory and is very hard or costly to replensih hence more stocks are maintained to lessen total cost
| Product A | ||||
| Store | Weekly Sales | Distance from DC | Required Days of Inventory | Required Inventory |
| 1 | 200 | Far | 28 | 800 |
| 2 | 300 | Medium | 21 | 900 |
| 3 | 400 | Near | 14 | 800 |
| TOTAL | 900 | 63 | 2500 |
As you can see, total required inventory for a given week is 2500 units. Now take a look at Product B
| Product B | ||||
| Store | Weekly Sales | Distance from DC | Required Days of Inventory | Required Inventory |
| 1 | 200 | Near | 14 | 400 |
| 2 | 180 | Near | 14 | 360 |
| 3 | 130 | Far | 28 | 520 |
| 4 | 140 | Medium | 21 | 420 |
| 5 | 100 | Far | 28 | 400 |
| 6 | 150 | Medium | 21 | 450 |
| TOTAL | 900 | 126 | 2550 |
The required inventory in a given week is 2550 units. 50 more than product A. 50 units isn't a lot but this is just an example. A very simple example. The only factor I considered here is distance from warehouse. There are more factors that can be considered such as delivery cost, holding cost, cost of money etc etc.
Though, I should point out that this is actually true for dry goods. For electronics, not so sure. But hey, its just an example. So yeah, I don't think that its a myth but is actually a real life scenario.
