Inventory Management with a Continuous Replenishment Policy Back to simulation

Model name: Inventory-Management-1, available on Simulation-for-Education.

Copyright Gerd Wagner (CC BY-NC), created on 6/1/2016 with the Object Event Simulation (OES) framework OESjs, last modified on 4/28/2022 | OESjs Credits

Classification tags: business operations management, DES, next-event time progression

System Narrative

A shop is selling one product type only (e.g., one model of TVs), such that its in-house inventory only consists of items of that type. On each business day, customers come to the shop and place their orders. If the ordered product quantity is in stock, the customer pays for the order and the ordered items are provided. Otherwise, the shop has missed a business opportunity and the difference between order quantity and the inventory level counts as a lost sale. The order may still be partially fulfilled, if there are still some items in stock, else the customer has to leave the shop without any item. The percentage of lost sales is an important performance indicator.

Whenever the stock level falls below a certain threshold (called reorder point), the shop places a replenishment order with a quantity computed as the difference between an upper threshold (called target inventory) and the current stock level.

Model Description

The model defines an inventory management system for a single product shop with a continuous review replenishment policy. For simplicity, customer orders are treated in an abstract way by aggregating all customer orders during a business day into a daily demand event, such that the random variation of the daily order quantity is modeled by a random variable.

Likewise, the random variation of the delivery lead time, which is the time in-between a replenishment order and the corresponding delivery, is modeled by a random variable.

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