Identifying inventory excess and service risk in medical devices : a simulation approach

Abstract

Medical devices companies struggle to balance between inventory and service performance, as the products are non-interchangeable and inventory investment is expensive. To find the right level of inventory, we first used unsupervised clustering method to find demand pattern uncertainty for each product. Then, we developed a simulation-based approach to determine the required inventory to achieve a required service level guarantee. We further explored policy changes in the demand fulfillment process to identify how the company can effectively improve performance without increasing inventory level. After comparing different results, we concluded that reduction of replenishment lead time is the most effective measure. The methodology can be applied to a wide range of products and sectors.