EOI or EOQ? A simulation study for the inventory management of a company operating in the railway sector

Abstract

The present paper proposes a study carried out in an Italian company operating in the railway industry, whose aim was to simulate two inventory management policies, namely the Economic Order Quantity (EOQ) and the Economic Order Interval (EOI) and compare the relating results from a set of simulations with historical data. The simulation was carried out on 53 articles (37 raw materials and 16 work in progress). The two models were developed under Microsoft Excel™, and their effectiveness was assessed in terms of amount of effective stock and the total costs associated; specifically, total costs are composed of three cost items: (i) order/production, (ii) stock keeping and (iii) stock out. Overall, both models returned better results in terms of economic saving and amount of stock than the current management policy used by the company; more specifically, the EOQ policy turned out to be the best, and was then selected for being implemented in the whole warehouse under investigation. Moreover, from a theoretical perspective, the need for a literature review on inventory management models emerged.