A multiple-item inventory model for a non-stationary demand

Abstract

Inventory decisions in supply chain are crucial for its success. These decisions become more important for the high-margin products with spiky random fluctuations in demand. As on one side the shortage costs are significant, on the other side, to maintain appropriate service levels and avoid shortages necessitates excessive inventory, which in turn affects the liquidity by blocking working capital. The problem gets compounded when the executives are required to deal with variety, randomness with respect to a particular product/SKU and to maintain rhythm in production set-up in line with fluctuations in supply chain. The other factors like constrained production capacity and obsolescence amplify the problems further. This article proposes a model that can be used for the cyclic replenishment-based dispatch system following rhythm in the non-dedicated production lines and using forecasts for the planning. The model presents a new scheme to arrive at the inventory replenishment levels and tries to improve the pull in the system. For validation, the model is simulated and the results are compared. This article offers an approach for optimisation considering organisational constraints of maintaining low inventory, rhythm, statistics and empirical understanding, and thus has business significance.

Keywords:

• inventory replenishment levels
• rhythm
• service optimised inventory
• replenishment period
• stochastic demands