AN EVALUATION OF ALTERNATIVE INVENTORY CONTROL POLICIES

Abstract

SUMMARY Five alternative inventory control policies are described: The reorder level method, two cyclical reorder methods, and two methods which combine the reorder level and the cyclical review procedures. In dynamic situations, where demand is subject to wide fluctuations, to seasonal patterns and perhaps to trends, it is important to monitor the performance of the system and to reevaluate the control parameters for any of the inventory policies adopted; an adaptive method of control is briefly described. The purpose of this study is to compare the performance of the five alternative policies and to provide a procedure whereby the effect of dynamic demand patterns can be determined. This is carried out by a simulation of the system, and examples relating to practical cases are cited. The simulation includes a forecasting rule, which incorporates seasonal and trend factors. Results show that of the five policies tested for several products the T,s,S procedure is generally most promising; the T,s,S policy relies on a cyclical review every T time periods, when the stock level is replenished to an upper level S, but if in between reviews the stock declines below a lower level s it triggers a reorder quantity S-s.