Inventory management by simulation analysis:A case study of Davis & Shirtliff Company limited

Abstract

Many organizations face serious challenges when it comes to managing their inventory. This study was aimed at developing an inventory management model that could be used to optimize financial resources deployed in inventory. It was a case study of a water engineering company. The company carries stocks of high value equipment and hence the importance of instituting proper inventory management systems. The model was developed through simulation analysis carried out on selected items from the company's inventory list. The selection of the items whose inventory simulation was carried out was based on an ABC analysis conducted on the product items. The Monte Carlo simulation method was applied using an electronic spreadsheet and both demand and lead time were treated as stochastic. The simulation was conducted over a period of 1000 weeks. The study came up with an inventory model that will minimize the total inventory costs through simulation analysis while demonstrating how simulation technique can be effectively used to solve inventory management problems. For each product item whose demand and lead time was simulated, minimum cost inventory policies were determined in terms of the order quantities and reorder points.