Designing an inventory control system for an industrial equipment distributor company

Abstract

The purpose of this research is finding a practical solution to an inventory management problem of a distributor company which is facing performance and delivery problems. The solution needs to be practical so that business professionals can easily customize and adapt it to their company. It is accepted for inventory managers that, a close-optimum solution is sufficient except of exact optimal solutions. For this purpose, literature is searched to find a proper heuristic algorithm. Silver (1974) proposes a practical procedure for selecting the order–up–to levels, can-order points and must-order points of a particular coordinated control system, namely policy. Demand is Poisson and a fixed non-zero replenishment lead time is assumed. Heuristic is used to help on deciding the levels of the inventory control parameters. One category is selected among the product range to examine closely and ten most profitable items are selected again from this category. According to different customer service levels and selected item group, independent and coordinated inventory control policies are modeled and run in Arena Simulation Software. Furthermore, to improve the obtained results, alternative scenarios are developed and run in Arena. Researches show that a certain parameter combination of joint order inventory control policy gives close-optimum solutions. It can be predict by obtained results that, improvements in customer service level will increase awareness of the potential customers for zero lead time and also increase annual sales income. At the end of the research, an easy-practical decision taking tool is developed to use in inventory management area.