Simulation of inventory management systems in retail stores: A case study

Abstract

Inventory management has become a key factor in today's world of uncertainty, particularly in the retail sector. Accordingly, there is a high requirement of managing and controlling the inventory with appropriate policies to elevate the organization's performance. In fact, a proper system has to be implemented for monitoring customer demand. This system will, in turn, assist in maintaining the right level of inventory. In this direction, the present research focuses on a retail store and explores a solution for an inventory-related problem experienced by the firm. A simulation model is developed and run for particular merchandise using Arena simulation software. Rigorous experimentation is conducted with the model by altering the inputs/model characteristics, and a more effective system is proposed. Compared with the existing traditional inventory management system, the proposed system will reduce the inventory level by 40% and lost sales by 87%. Furthermore, the proposed system is optimized using the OptQuest module in Arena simulation software. As a result, the inventory level is further reduced by 73% compared to the existing system. Store managers in various organizations may utilize the proposed methodology for improving their inventory management system.