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SIM MRP Inventory Policy

We consider a supply chain in the USA comprising:

  • Toothbrush Factory
  • 2 sites supplying customers
Demand

The demand is distributed stochastically and is proportional to the population of the cities. Some customers order toothbrush every day, others once in two weeks.

The demanded quantity of toothbrushes is evenly divided between the two sites, which have different inventory replenishment policies:

  • one site orders products when the inventory level falls below a fixed replenishment point
  • the other one orders products based on calculated inventory forecast for the horizon period
Goal

The goal is to compare different inventory policies and choose the one that helps to maintain a sufficient inventory level when we do not know the amount of product that can be demanded.

Result

If we compare the service levels of the two DCs in the received results, we will see that service level at DC Harrisburg is worse than the service level at DC Lancaster.

To find the reason we will navigate to the Inventory table. As you can see on the screenshot below the DC Harrisburg uses the Min-max policy with safety stock, while DC Lancaster is using the Material Requirements Planning policy, which allows it to maintain the required service level.

The result of the experiment shows that we obtain the better service level when we estimate expected customer demand for certain products over the specified period of time, than when we set a fixed replenishment point for inventory level.

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