Global sensitivity analysis in inventory management

Abstract

This paper deals with the sensitivity analysis (SA) of inventory management models when uncertainty in the input parameters is given full consideration. We make use of Sobol’ function and variance decomposition method for determining the most influential parameters on the model output. We first illustrate the method by means of an analytical example. We provide the expression of the global importance of demand, holding costs, order costs of the Harris economic order quantity (EOQ) formula. We then present the global SA of the inventory management model developed by Luciano and Peccati [1999. Capital structure and inventory management: the temporary sale problem. International Journal of Production Economics 59, 169–178] for the economic order quantity estimation in the context of the temporary sale problem. We show that by performing global SA in parallel to the modeling process an analyst derives insights not only on the EOQ structure when its expression is not analytically known, but also on the relevance of modeling choices, as the inclusion of financing policies and special orders.