Tracking signals in inventory control systems A simulation study

Abstract

The purpose of this analysis is to evaluate three different tracking signal models. From the point of view of inventory control, we are interested in examining the tracking signal's impact on inventory control performance as measured by the resulting costs — including holding costs, order costs, and shortage costs. In this analysis we are dealing with an inventory control problem for thousands of different items (typical class B items) with independent demand. It is therefore assumed that inventory is controlled using a simple and in practical inventory control often used ( s, Q) system, where the order quantity is calculated using the EOQ formula, and the order point is determined using a well-known stochastic inventory model. The method used will be stochastic simulation, by which it is possible to simulate the practical use of the tracking signal models together with theoretical inventory models. The simulations are carried out for different items where the probability distribution of demand is a dynamic normal distribution, with means describing different time-dependent demand patterns, including trends and different seasons. The conclusion, based on the simulation results, leads to some guidelines on implementing tracking signal methods in inventory control systems.