Inventory simulation using various ordering policies
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You will assume the role of the inventory manager for Simkin's Hardware. Use the initial simulation attachment, which uses a reorder policy of order 10 units when inventory falls to 5 or less. Run the simulation over 20 days and answer the following:
1. Using the initial simulation results, determine the estimated total annual inventory cost using the cost parameters provided in the example. Break out between order cost, holding cost, and stockout cost.
2. Critically assess the model as given. What assumptions have been made and how may the model be changed or enhanced?
3. Considering the costs determined in question 1 above, posit 2 additional reorder policies (reorder point and units ordered) that you hypothesize may decrease total annual inventory cost. Run the policies through the 20 day simulation and critically assess the results compared to the initial simulation.
Average ending inventory = (41 total units)/10 days = 4.1 units per day
Average lost sales = (2 sales lost)/10 days = 0.2 units per day
Average number of orders placed = 3 orders/10 days = 0.3 orders per day
Daily order cost = $10 per order x 0.3 order per day = $3
Daily Holding cost = $0.03 per unit per day x 4.1 units per day = $0.12
Daily stockout cost = $8 per lost sale x 0.2 lost sales per day = $1.60
Total Daily inventory cost = $4.72
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Solution Summary
As a inventory planner need is to simulate various inventory policies and define optimum policy that minimizes inventory hold, ordering and stockout costs. The attached file provides detailed explanations and calculations for easy reference purpose.
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