Management of inventory using control theory

Abstract

This paper describes the systems approach to the management of inventory. It puts into context the use of System Dynamics (SD) and other Cybernetic models and outlines their advantages and disadvantages. The main objective of a systems examination is to understand how the organisation of a business affects its performance. Principally the SD method is concerned with causal relationships. Cybernetic models are used to find an analytic expression to describe the whole process, concentrating on the input and outputs to the system. Results of simple inventory management are shown to be examples of proportional control in conventional theory. Better control algorithms, such as proportional, derivative and integral (PID), are used to indicate a more sophisticated form of inventory control that can easily reduce stock levels by 80% and hence reduce cost. This has special significance for JIT and MRP methods.