Decision support for the single‐period inventory problem

Abstract

The development of a decision support tool for the single‐period inventory problem is presented. The support tool allows a consideration of the following factors: empirical frequency distributions, theoretical probability distribution functions and managerial probability estimates of total demand over the period; piece‐wise linear (possibly discontinuous) cost functions. Such functions allow for the possibility of “fixed cost” elements and/or “economies/diseconomies” of scale and account for most, if not all, of the purchase cost, holding cost, salvage revenue and shortage cost functions that arise in practice; choice of performance measures; and “what‐if” analysis on the problem parameters. The support tool, which uses the Monte Carlo simulation option of Visual IFPS/Plus, is transparent and constructively simple and thus readily facilitates understanding, acceptance and implementation by management. The support tool runs under the Windows operating system and has easy access to appropriate spreadsheet and word‐processing packages for further processing and report presentation.