Management of a high mix production system with interdependent demands : simulation of proposed policies

Abstract

The finished goods inventory management in the accessories area of a material testing company is complex. There is interdependence between the demands of products and they can be sold both as part of systems and as individual after sales items. Besides, there is uncertainty in determining replenishment lead times. An optimization problem is formulated considering customer satisfaction, inventory holding costs and correlation between demands. To ascertain its validity, a discrete event simulation is executed over historical demand. Simulation also helps to check the solution robustness by executing the proposed inventory levels over statistically generated demands. The result provides the right mix of finished products which should be stored on the shelves. 90% reduction in lost sales and 35% in inventory value on hand have been projected. The results have been further implemented at the part level inventory.