A Simulation Modelling Approach for Selection of Inventory Policy in a Supply Chain

Inventory management has a critical role in controlling and overseeing the flow of materials and finished goods. Inventory policy is considered as one of the most significant decisions contributing to the effectiveness of inventory management. Therefore, the objective of this study is to determine appropriate inventory policies that can help a company to achieve cost savings and ability to satisfy customer demand. In order to deal with stochastic customer demand and lead time, a simulation modelling approach is used and applied for a numerical example of a two-echelon supply chain including manufacturer and distributor. A set of order quantity, reorder point, or review period for different inventory policies is analyzed based on the total inventory cost and lost demand. The resulting study shows that the obtained solution can assist decision makers in achieving the cost-effectiveness and improving customer service level for the whole supply chain.