Simulation of Allocation Policies for a Serial Inventory System Under Advance Demand Information

Abstract

In this paper, we simulate allocation policies for a two-stage inventory system that receives perfect advance demand information (ADI) from customers belonging to different demand classes. Demands for each customer class are generated by independent Poisson processes while the processing times are deterministic. All customers in the same class have the same demand lead time (the difference between the due date and the requested date) and back-ordering costs. Each stage in the inventory system follows order-base-stock-policies where the replenishment order is issued upon arrival of a customer order. The problem requires a fast and reliable method that determines the system performance under different policies and ADI. Thus, we employ discrete event simulation to obtain output parameters such as inventory costs, fill rates, waiting time, and order allocation times. A numerical analysis is conducted to identify a reasonable policy to use in this type of system.