An experimental investigation into inventory management policies at a service centre

• Main Author: Koh, Sze Yong.
• Other Authors: Rajesh Piplani
• Format: Final Year Project
• Language: English
• Published: 2009
• Subjects: DRNTU::Engineering::Mechanical engineering
• Online Access: http://hdl.handle.net/10356/20708
• Institution: Nanyang Technological University

Companies always need to satisfy customers with different types of service requirements, such as response time. Therefore, companies start to separate customers into different customer classes according to their service requirement. However, this is a big challenge for the companies to come out with an effective inventory policy so that it can satisfy different customer classes with the minimum inventory cost. When the inventory reaches below critical level (rationing), the demand from lower priority customer classes is rejected (or to be backordered) as the inventory will be reserved to satisfy the demand from high priority customer classes. In this final year project, inventory rationing policies are put into consideration to design a model to do experiments by varying some inventory policy parameters. The customers are separated into two different classes based on the backorder cost (penalty cost) if not satisfying their demands. Total annual inventory cost consists of holding cost, re-ordering cost and backorder cost (penalty cost). ARENA software is used to design a model to simulate in order to analyze the effect of holding cost, order quantity and critical level on the total cost. Two models, which are inventory rationing policy and inventory policy without rationing, are used for comparison. The results show that the inventory rationing policy is very critical to company as it can effectively minimize the total cost in order to maximize the profits without scarifying the service level to meet the demands.