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Simulation of Supercrete Cement dealers Inventory System


K.M. Mostafizur Rahman Sobuj

2012
This PDF file contains its original document file and excel file as attachments
(Use office 2010 for better performance)

Let me know if it helped you! Or if youve made any development in the logic
sobuj@student.sust.edu

Industrial & Production Engineering

Name of the topic: Simulation of Supercrete Cement dealers Inventory System


Objectives:
1. To assist the dealer in reorganizing the inventory system (maximum inventory level,
review period, other inventory model, etc.) if necessary.
2. To assist the dealer in gaining better control over the inventory system.
3. To generate an insight view of overcoming stock out related risk.
4. To assist the dealer in reorganizing the suppliers network (inclusion or exclusion of one
or more suppliers) if necessary.
Problem statement: In University gate the dealer of Supercrete Cement has the capacity to
store maximum 50,000 bags of cement in their inventory, but they usually keep 18000 bags of
cement in off season (maximum inventory level M) & 27000 bags of cement in peak season.
They use fixed time period model to replenish the inventory stock. The review period N, is 3
days. Lead time is a random variable, but it falls in the range of 1 to 2 days. The dealer gets
demand in random manner which falls in the range of 2000 to 3100 bags of cement/per day in off
season and 3150 to 5200 bags of cement in peak season. For simplicity they usually place orders
at the end of the day and replenish the inventory stock at the beginning of the day. Now wed
like to estimate the average ending units in inventory, the number of days when a shortage
condition occurs and the average order quantity by simulation and also try to improve the model.
Components of this system:
Entity: Cement bags
Attribute: Demand, Lead time.
Activity: Filling demand from inventory, replenishing inventory stock from order.
State: Number of inventory shortage in stock.
Event: Getting demand from customers.
Introduction: A simulation is the imitation of the operation of a real-world process or system
over time. Whether done by hand or on a computer, simulation involves the generation of an
artificial history of a system, and the observation of that artificial history to draw inferences
concerning the operating characteristics of the real system.
An important class of simulation problems involves inventory systems. This inventory system
has a periodic review of length T, at which time the inventory level is checked. An order is made
to bring the inventory up to the level M. At the end of the first review period, an order quantity,
Q1, is placed. Since demands are not usually known with certainty, the order quantities are
probabilistic.

Steps In Our Simulation Study:


1. Concept generation:
For our project at first we generated two ideas:
a. Queuing system of Sonali Bank and
b. Supercrete Cements dealer Inventory System.
We selected these two topics because it was relatively easy to collect the relevant data for
us. As already one of our groups submitted their topic on Dutch Bangla Banks queuing
system thats why most of the members of our group agreed to perform our simulation
project on the Supercrete Cements dealer Inventory System. Besides our course teacher
encouraged us to perform our simulation on this topic.
2. Setting of objectives:

To estimate the average ending units in inventory.


To estimate the number of days when a shortage condition occurs.
To estimate the average order quantity.
To find out an optimal Inventory level

For this purpose we have used spreadsheet to analyze the data and the objectives.
3. Model conceptualization:
We have visited the dealer of Supercrete cement. In there we have discussed with them
about the current model. After that we decided which type of data should be collected.
4. Data collection:
We have collected data from their database over last 12 months.
Though the maximum capacity to store is 50,000 bags of cement but they usually keep
18000 bags of cement in off season and 27000 bags of cement in peak season.
Maximum inventory level in off season M = 18000 bags.
Maximum inventory level in peak season M = 27000 bags.
They use fixed time period model to replenish the inventory stock.
The review period T = 3 days.
Lead time is a random variable, but it falls in the range of 1 to 2 days.
The dealer gets demand in random manner which usually falls in the range of 2000 to
3100 bags of cement/per day in off season & 3150 to 5200 bags of cement in peak
season. For simplicity they usually place orders at the end of the day and replenish the
inventory stock at the beginning of the day.

5. Probability distribution and random number from collected data:


From the collected data we have generated probability distribution demand and lead time
and we have also generated the random numbers for demands and lead time.
4 Month Data For Demand In Off Season
Demand

Days

Probability

Cumulative
Probability

2000
2200
2400
2500
2700
2800
2900
3000
3100
Total=

9
12
14
16
19
15
13
12
10
120

0.075
0.100
0.117
0.133
0.158
0.125
0.108
0.100
0.083

0.075
0.175
0.292
0.425
0.583
0.708
0.817
0.917
1.000

Random Digit assignment


(From)
(To)
001
076
176
293
426
584
709
818
918

075
175
292
425
583
708
817
917
000

This demand data follows the normal distribution,


20
18
16

14
12
10

Days

8
6
4
2
0

2000

2200

2400

2500

2700

2800

2900

3000

3100 Demand

8 Month Data For Demand In Peak Season


Demand

Days

Probability

Cumulative
Probability

3150
3250
3450
3500
3750
3900
4000
4250
4500
4700
4800
5000
5200
Total=

11
14
17
19
22
25
27
23
21
18
16
15
12
240

0.046
0.058
0.071
0.079
0.092
0.104
0.113
0.096
0.088
0.075
0.067
0.063
0.050

0.046
0.104
0.175
0.254
0.346
0.450
0.563
0.658
0.746
0.821
0.888
0.950
1.000

Random Digit assignment


(From)
(To)
001
047
105
176
255
347
451
564
659
747
822
889
951

046
104
175
254
346
450
563
658
746
821
888
950
000

This demand data also follows the normal distribution


30
25
20
15
10
5
0

Lead time
(Days)

Times

1
2
Total=

97
23
120

5200

5000

4800

4700

4500

4250

4000

3900

3750

3500

3450

3250

3150

Days

12 Month Data For Lead Time, L


Probability Cumulative Random digit assignment
probability
(From)
(To)
0.81
0.19

0.81
1.00

01
82

81
00

After generating probability distribution we have put those data in spreadsheet in logical manner.
At first we have performed simulation for the existing inventory system. Then weve performed
simulation for our proposed inventory model.

Simulation of existing model (off season): The beginning inventory was 10,000 bags of cement and 8000 bags of cement order was already placed, the order will reach
the destination after 2 days.
Inventory level =
Cycle

18000

Beginning inventory =

10000

Initial order =

8000

Day

Beginning
Inventory

Random
Digits for
Demand

Demand

Ending
Inventory

Shortage
Quantity

Order
Quantity

Random digit
for lead time

Generated
Lead time

Days until
Order
Arrives

Order
received?

10000

837

3000

7000

No

Ending
inventory
just before
the day order
received
-

7000

069

2000

5000

No

5000

13000

899

3000

10000

8000

78

Received

10000

248

2400

7600

No

7600

15600

413

2500

13100

Received

13100

857

3000

10100

7900

07

No

10100

400

2500

7600

No

7600

15500

838

3000

12500

Received

12500

944

3100

9400

8600

59

No

9400

725

2900

6500

No

6500

15100

219

2400

12700

Received

3
1
2

12700
10000
15300

456
477
830

2700
2700
3000

10000
7300
12300

0
0
0

8000
-

30
-

1
-

1
0
-

No
No
Received

7300
-

12300

042

2000

10300

7700

15

No

10300

053

2000

8300

No

8300

16000

700

2800

13200

Received

13200

468

2700

10500

7500

55

No

10500

154

2200

8300

No

8300

15800

436

2700

13100

Received

13100

001

2000

11100

6900

80

No

11100

332

2500

8600

No

8600

15500

242

2400

13100

Received

13100

552

2700

10400

7600

71

No

10400

740

2900

7500

No

7500

15100

622

2800

12300

Received

12300

098

2200

10100

7900

39

No

10

11

12

13

14

15

16

17

18

19

20

10100

732

2900

7200

No

7200

15100

933

3100

12000

Received

12000

425

2500

9500

8500

77

No

9500

926

3100

6400

No

6400

14900

689

2800

12100

Received

12100

062

2000

10100

7900

04

No

1
2

10100
16000

037
594

2000
2800

8100
13200

0
0

0
-

No
Received

8100
-

13200

200

2400

10800

7200

28

No

10800

625

2800

8000

No

8000

15200

127

2200

13000

Received

13000

038

2000

11000

7000

91

No

11000

211

2400

8600

No

8600

071

2000

6600

No

6600

13600

062

2000

11600

6400

46

Received

11600

513

2700

8900

No

8900

15300

865

3000

12300

Received

12300

834

3000

9300

8700

27

No

9300

911

3000

6300

No

6300

15000

515

2700

12300

Received

12300

854

3000

9300

8700

95

No

9300

501

2700

6600

No

6600

988

3100

3500

No

3500

12200

469

2700

9500

8500

99

Received

9500

705

2800

6700

No

6700

071

2000

4700

No

4700

13200

948

3100

10100

7900

71

Received

10100

357

2500

7600

No

7600

15500

461

2700

12800

Received

12800

725

2900

9900

8100

04

No

9900

896

3000

6900

No

6900

15000

230

2400

12600

Received

12600

560

2700

9900

8100

98

No

9900

622

2800

7100

No

21

22

23

24

25

26

27

28

29

30

31

32

7100

388

2500

4600

No

4600

12700

776

2900

9800

8200

63

Received

9800

063

2000

7800

No

7800

16000

103

2200

13800

Received

13800

440

2700

11100

6900

44

No

11100

596

2800

8300

No

8300

15200

327

2500

12700

Received

12700

567

2700

10000

8000

55

No

10000

128

2200

7800

No

7800

15800

608

2800

13000

Received

13000

950

3100

9900

8100

18

No

9900

589

2800

7100

No

7100

15200

785

2900

12300

Received

12300

071

2000

10300

7700

35

No

10300

295

2500

7800

No

7800

15500

571

2700

12800

Received

12800

822

3000

9800

8200

15

No

9800

165

2200

7600

No

7600

15800

761

2900

12900

Received

12900

311

2500

10400

7600

75

No

10400

567

2700

7700

No

7700

15300

527

2700

12600

Received

12600

942

3100

9500

8500

86

No

9500

989

3100

6400

No

6400

597

2800

3600

No

3600

12100

340

2500

9600

8400

51

Received

9600

172

2200

7400

No

7400

15800

837

3000

12800

Received

12800

821

3000

9800

8200

96

No

9800

121

2200

7600

No

7600

580

2700

4900

No

4900

13100

899

3000

10100

7900

42

Received

10100

487

2700

7400

No

7400

15300

343

2500

12800

Received

33

34

35

36

37

38

39

40

41

42

43

12800

319

2500

10300

7700

59

No

10300

387

2500

7800

No

7800

15500

684

2800

12700

Received

12700

690

2800

9900

8100

82

No

9900

934

3100

6800

No

6800

739

2900

3900

No

3900

12000

384

2500

9500

8500

65

Received

9500

073

2000

7500

No

7500

16000

206

2400

13600

Received

13600

298

2500

11100

6900

23

No

11100

291

2400

8700

No

8700

15600

878

3000

12600

Received

12600

956

3100

9500

8500

59

No

9500

996

3100

6400

No

6400

14900

345

2500

12400

Received

12400

309

2500

9900

8100

96

No

9900

652

2800

7100

No

7100

144

2200

4900

No

4900

13000

262

2400

10600

7400

66

Received

10600

189

2400

8200

No

8200

15600

690

2800

12800

Received

12800

904

3000

9800

8200

47

No

9800

120

2200

7600

No

7600

15800

133

2200

13600

Received

13600

267

2400

11200

6800

11

No

11200

388

2500

8700

No

8700

15500

340

2500

13000

Received

13000

627

2800

10200

7800

50

No

10200

122

2200

8000

No

8000

15800

277

2400

13400

Received

13400

289

2400

11000

7000

22

No

11000

951

3100

7900

No

7900

14900

956

3100

11800

Received

11800

963

3100

8700

9300

87

No

44

45

46

47

48

49

50

51

52
Average
ending
inventory

8700

332

2500

6200

No

6200

745

2900

3300

No

3300

12600

423

2500

10100

7900

35

Received

10100

895

3000

7100

No

7100

15000

711

2900

12100

Received

12100

753

2900

9200

8800

95

No

9200

035

2000

7200

No

7200

827

3000

4200

No

4200

13000

222

2400

10600

7400

47

Received

10600

890

3000

7600

No

7600

15000

439

2700

12300

Received

12300

966

3100

9200

8800

56

No

9200

936

3100

6100

No

6100

14900

788

2900

12000

Received

12000

812

2900

9100

8900

08

No

9100

729

2900

6200

No

6200

15100

342

2500

12600

Received

12600

727

2900

9700

8300

17

No

9700

948

3100

6600

No

6600

14900

241

2400

12500

Received

12500

356

2500

10000

8000

21

No

10000

960

3100

6900

No

6900

14900

339

2500

12400

Received

12400

292

2500

9900

8100

49

No

9900

707

2800

7100

No

7100

15200

228

2400

12800

Received

12800

620

2800

10000

8000

09

No

10052

Avg. order

7948

Shortage=

Avg. daily
demand
Demand=

2649

9478

Average ending inventory in


review period

Average lead time =

1.19

Mean demand during (T+L) periods =

Standard deviation of daily demand =

333.79

Order up to level should be =

14942

11107

Standard deviation of demand during


(T+L) periods =

683.45

Average Ending inventory just before the


day order received =
Performance of current model =

6877
61.79%

Analysis of current model (Off season):


1. Weve simulated the current model for 52 cycles (156 days) to get a steady state
condition.
2. Average daily demand is 2649 units.
3. Average lead time 1.19 days.
4. Average ending inventory is 9478 units.
5. Average ending inventory in review period is 10052 units.
6. The average ending inventory just before the day order received is 6877 units which is
about ((6877 100)/18000) = 38.21 % of the stock level and its quite high.
7. Average ending inventory in the review period is 11755 units its about (10052/2649)
= 3.8 times of the average demand which is also quite high!
8. There is no shortage condition.
9. Inbound-outbound performance of current model can be determined by following
manner, = (Total inventory outbound in T+L period/inventory level)
= (Current inventory level- Inventory left in stock just before the day order arrive) /
(Current Inventory level)
= ((18000-6877)/18000)
= 61.79%
Problem identification from the existing inventory model:
1. As the average ending inventory is very high with respect to the stock level. For this
reason holding cost is very high which affects profitability.
2. Comparing with the demand during lead time and considering safety stock, average
cycle inventory is also very high which ultimately affects the total inventory cost.
3. As maximum inventory level is very high so that a large amount of space of total
capacity remains unused that affects the total inventory cost.
4. As the performance level is low thats why a large amount of capital will tied-up and
remain unused. Thats why an optimal policy is required to solve this problem.
Determination of an optimal Inventory level:
For periodic review policy Order up to level point is determined by, OUL= DT+L+SS
Where,
DT+L= Mean demand during T+L period
SS = Safety stock.
As because this model has no backordering system, thats why the safety stock should be
good enough to support the uncertainty of demand and lead time without stock out risk.
Thats why weve assumed the cycle service level very high for meeting any uncertainty of
demand and lead time without the risk of stock out. (This service level adopted by trial &
error method from observing its impact on proposed model)

In this case, we have,


Average daily demand, D = 2649 units
Standard deviation of daily demand, D = 333.79
Average lead time for replenishment, L = 1.19 days.
Review interval, T = 3 days.
Mean demand during T+L period, DT+L= (3+1.19) 2649 = 11107 units.
Standard deviation of demand during T+L period =
=

= 683.45
SS= NORMSINV (0.99999999) Standard deviation of demand during T+L period
= 5.61 683.45 = 3483.15 units.
So the Inventory level should be = DT+L + SS = 14941.15 15000 units

Proposed new Inventory level is 15000 units with the same demand pattern and lead
time.
The proposed models simulation is shown below,

Simulation of proposed model (off season): The beginning inventory was 10,000 bags of cement and 5000 bags of cement order was already placed, the order will
reach the destination after 2 days.
Inventory level =
Cycle

15000

Beginning inventory =

10000

Initial order =

5000

Day

Beginning
Inventory

Random
Digits for
Demand

Demand

Ending
Inventory

Shortage
Quantity

Order
Quantity

Random digit
for lead time

Generated
Lead time

Days until
Order
Arrives

Order
received?

Ending inventory
just before the
day order
received

10000

629

2800

7200

No

7200

734

2900

4300

No

4300

9300

698

2800

6500

8500

16

Received

6500

712

2900

3600

No

3600

12100

548

2700

9400

Received

9400

827

3000

6400

8600

24

No

6400

321

2500

3900

No

3900

12500

104

2200

10300

Received

10300

719

2900

7400

7600

79

No

7400

423

2500

4900

No

4900

12500

433

2700

9800

Received

9800

406

2500

7300

7700

01

No

7300

471

2700

4600

No

4600

12300

530

2700

9600

Received

9600

770

2900

6700

8300

07

No

6700

013

2000

4700

No

4700

13000

920

3100

9900

Received

9900

791

2900

7000

8000

23

No

7000

933

3100

3900

No

3900

11900

080

2200

9700

Received

9700

762

2900

6800

8200

83

No

6800

980

3100

3700

No

3700

643

2800

900

No

900

9100

269

2400

6700

8300

13

Received

6700

769

2900

3800

No

3800

12100

186

2400

9700

Received

10

11

12

13

14

15

16

17

18

19

20

9700

328

2500

7200

7800

84

No

7200

788

2900

4300

No

4300

342

2500

1800

No

1800

9600

858

3000

6600

8400

94

Received

6600

249

2400

4200

No

4200

663

2800

1400

No

1400

9800

490

2700

7100

7900

73

Received

7100

253

2400

4700

No

4700

12600

155

2200

10400

Received

10400

427

2700

7700

7300

97

No

7700

748

2900

4800

No

4800

539

2700

2100

No

2100

9400

575

2700

6700

8300

25

Received

6700

810

2900

3800

No

3800

12100

594

2800

9300

Received

9300

246

2400

6900

8100

15

No

6900

204

2400

4500

No

4500

12600

063

2000

10600

Received

10600

663

2800

7800

7200

42

No

7800

994

3100

4700

No

4700

11900

720

2900

9000

Received

9000

803

2900

6100

8900

30

No

6100

195

2400

3700

No

3700

12600

537

2700

9900

Received

9900

634

2800

7100

7900

05

No

7100

437

2700

4400

No

4400

12300

969

3100

9200

Received

9200

819

3000

6200

8800

78

No

6200

936

3100

3100

No

3100

11900

312

2500

9400

Received

9400

036

2000

7400

7600

60

No

7400

262

2400

5000

No

5000

12600

067

2000

10600

Received

21

22

23

24

25

26

27

28

29

30

31

10600

749

2900

7700

7300

89

No

7700

966

3100

4600

No

4600

491

2700

1900

No

1900

9200

588

2800

6400

8600

72

Received

6400

838

3000

3400

No

3400

12000

498

2700

9300

Received

9300

023

2000

7300

7700

97

No

7300

949

3100

4200

No

4200

088

2200

2000

No

2000

9700

833

3000

6700

8300

12

Received

6700

797

2900

3800

No

3800

12100

283

2400

9700

Received

9700

061

2000

7700

7300

19

No

7700

824

3000

4700

No

4700

12000

976

3100

8900

Received

8900

059

2000

6900

8100

40

No

6900

476

2700

4200

No

4200

12300

600

2800

9500

Received

9500

878

3000

6500

8500

46

No

6500

213

2400

4100

No

4100

12600

425

2500

10100

Received

10100

655

2800

7300

7700

09

No

7300

178

2400

4900

No

4900

12600

899

3000

9600

Received

9600

035

2000

7600

7400

97

No

7600

520

2700

4900

No

4900

257

2400

2500

No

2500

9900

709

2900

7000

8000

61

Received

7000

786

2900

4100

No

4100

12100

863

3000

9100

Received

9100

110

2200

6900

8100

14

No

6900

564

2700

4200

No

4200

12300

107

2200

10100

Received

32

33

34

35

36

37

38

39

40

41

42

10100

846

3000

7100

7900

02

No

7100

250

2400

4700

No

4700

12600

458

2700

9900

Received

9900

184

2400

7500

7500

90

No

7500

531

2700

4800

No

4800

726

2900

1900

No

1900

9400

045

2000

7400

7600

00

Received

7400

043

2000

5400

No

5400

545

2700

2700

No

2700

10300

274

2400

7900

7100

68

Received

7900

417

2500

5400

No

5400

12500

098

2200

10300

Received

10300

085

2200

8100

6900

81

No

8100

125

2200

5900

No

5900

737

2900

3000

No

3000

9900

443

2700

7200

7800

71

Received

7200

929

3100

4100

No

4100

11900

933

3100

8800

Received

8800

800

2900

5900

9100

31

No

5900

237

2400

3500

No

3500

12600

623

2800

9800

Received

9800

607

2800

7000

8000

72

No

7000

143

2200

4800

No

4800

12800

171

2200

10600

Received

10600

662

2800

7800

7200

94

No

7800

247

2400

5400

No

5400

975

3100

2300

No

2300

9500

955

3100

6400

8600

05

Received

6400

431

2700

3700

No

3700

12300

245

2400

9900

Received

9900

020

2000

7900

7100

65

No

7900

688

2800

5100

No

5100

12200

414

2500

9700

Received

43

44

45

46

47

48

49

50

51

52

53

9700

669

2800

6900

8100

28

No

6900

112

2200

4700

No

4700

12800

159

2200

10600

Received

10600

024

2000

8600

6400

81

No

8600

705

2800

5800

No

5800

986

3100

2700

No

2700

9100

962

3100

6000

9000

72

Received

6000

786

2900

3100

No

3100

12100

362

2500

9600

Received

9600

128

2200

7400

7600

51

No

7400

706

2800

4600

No

4600

12200

616

2800

9400

Received

9400

815

2900

6500

8500

67

No

6500

374

2500

4000

No

4000

12500

970

3100

9400

Received

9400

293

2500

6900

8100

43

No

6900

602

2800

4100

No

4100

12200

088

2200

10000

Received

10000

162

2200

7800

7200

50

No

7800

990

3100

4700

No

4700

11900

367

2500

9400

Received

9400

661

2800

6600

8400

51

No

6600

071

2000

4600

No

4600

13000

061

2000

11000

Received

11000

138

2200

8800

6200

70

No

8800

363

2500

6300

No

6300

12500

057

2000

10500

Received

10500

447

2700

7800

7200

08

No

7800

328

2500

5300

No

5300

12500

431

2700

9800

Received

9800

845

3000

6800

8200

61

No

6800

383

2500

4300

No

4300

12500

710

2900

9600

Received

54

55

56

57

58

59

60

61

62

63

64

9600

015

2000

7600

7400

54

No

7600

829

3000

4600

No

4600

12000

492

2700

9300

Received

9300

709

2900

6400

8600

57

No

6400

760

2900

3500

No

3500

12100

799

2900

9200

Received

9200

599

2800

6400

8600

99

No

6400

428

2700

3700

No

3700

377

2500

1200

No

1200

9800

271

2400

7400

7600

24

Received

7400

092

2200

5200

No

5200

12800

078

2200

10600

Received

10600

010

2000

8600

6400

30

No

8600

875

3000

5600

No

5600

12000

020

2000

10000

Received

10000

649

2800

7200

7800

15

No

7200

725

2900

4300

No

4300

12100

321

2500

9600

Received

9600

039

2000

7600

7400

18

No

7600

866

3000

4600

No

4600

12000

749

2900

9100

Received

9100

354

2500

6600

8400

09

No

6600

297

2500

4100

No

4100

12500

464

2700

9800

Received

9800

658

2800

7000

8000

54

No

7000

827

3000

4000

No

4000

12000

675

2800

9200

Received

9200

388

2500

6700

8300

25

No

6700

844

3000

3700

No

3700

12000

583

2700

9300

Received

9300

166

2200

7100

7900

16

No

7100

129

2200

4900

No

4900

12800

184

2400

10400

Received

65

66

67

68

69

70

71

72
Average
ending
inventory

10400

493

2700

7700

7300

51

No

7700

840

3000

4700

No

4700

12000

158

2200

9800

Received

9800

894

3000

6800

8200

68

No

6800

496

2700

4100

No

4100

12300

983

3100

9200

Received

9200

258

2400

6800

8200

01

No

6800

805

2900

3900

No

3900

12100

748

2900

9200

Received

9200

622

2800

6400

8600

42

No

6400

155

2200

4200

No

4200

12800

376

2500

10300

Received

10300

966

3100

7200

7800

47

No

7200

513

2700

4500

No

4500

12300

013

2000

10300

Received

10300

594

2800

7500

7500

40

No

7500

122

2200

5300

No

5300

12800

184

2400

10400

Received

10400

516

2700

7700

7300

01

No

7700

441

2700

5000

No

5000

12300

537

2700

9600

Received

9600

589

2800

6800

8200

00

No

6800

640

2800

4000

No

4000

064

2000

2000

No

2000

10200

285

2400

7800

7200

27

Received

7128

Avg. order

7872

Shortage=

Avg. daily
demand
Demand=

2624

6599

Average ending inventory


in review period

Average Ending inventory just before


the day order received =

3925

Performance of proposed model =

73.83%

Average lead time =

1.19

Analysis of the proposed inventory model:


1. Weve simulated the proposed model for 72 cycles (216 days) to get a steady state
condition.
2. The new model has 3000 units less inventory than the existing model.
3. Average daily demand is 2624 units. (Almost same as the existing model, 2649 units )
4. Average lead time 1.19 days. (Same as the existing model!)
5. Average ending inventory is 6599 units, less than the existing model by (9478-6599)
= 2879 units
6. Average ending inventory in review period is 7128 units, in existing system its about
10052 units! (2924 units less than the existing system)
7. The average ending inventory just before the day order received is 3924 units which is
about ((3924 100)/15000) = 26.16 % of the stock level, less than the existing model
by (38.21-26.16) % = 12.05 %!
8. Average ending inventory in the review period is 7128 units its about (7128/2624) =
2.71 times of the average demand which is less than the existing model by (3.8-2.71)
= 1.09 times!
9. There is no shortage condition.
10. Inbound-outbound performance of current model can be determined by following
manner, = (Total inventory outbound in T+L period/ Inventory level)
= (Current Inventory level - Inventory left in stock just before the day order arrive) /
(Current Inventory level)
= ((15000-3924)/15000)
= 73.84% (> than the existing model by 61.79-73.84 = 12.05%)
11. So weve reduced about ((3000
)/18000) % = 16.67% inventory than the
existing model.
Advantages of the proposed inventory model:
1. In our proposed inventory model the average ending inventory is less than the existing
inventory model which will reduce inventory holding cost.
2. Comparing with the demand during lead time and considering safety stock, this
prosed model has less average ending inventory than existing inventory model. It will
help to reduce capital wastages.
3. Stock level is reduced about 16.6 % in off season without any shortage condition.

Simulation of existing model (Peak season): The beginning inventory was 16000 bags of cement and 10500 bags of cement order was already placed, the order will
reach the destination after 2 days.
Inventory level =
Cycle

26500

Beginning inventory =

16000

Initial order =

10500

Day

Beginning
Inventory

Random Digits
for Demand

Demand

Ending
Inventory

Shortage
Quantity

Order
Quantity

Random digit
for lead time

Generated
Lead time

Days until
Order
Arrives

Order
received?

16000

779

4700

11300

No

Ending
inventory just
before the day
order received
-

11300

010

3150

8150

No

8150

18650

488

4000

14650

11850

20

Received

14650

799

4700

9950

No

9950

21800

621

4250

17550

Received

17550

517

4000

13550

12950

63

No

13550

478

4000

9550

No

9550

22500

875

4800

17700

Received

17700

186

3500

14200

12300

73

No

14200

398

3900

10300

No

10300

22600

574

4250

18350

Received

3
1
2

18350
14900
22500

154
540
126

3450
4000
3450

14900
10900
19050

0
0
0

11600
-

46
-

1
-

1
0
-

No
No
Received

10900
-

19050

359

3900

15150

11350

06

No

15150

185

3500

11650

No

11650

23000

350

3900

19100

Received

19100

896

5000

14100

12400

92

No

14100

568

4250

9850

No

9850

804

4700

5150

No

5150

17550

537

4000

13550

12950

14

Received

13550

201

3500

10050

No

10050

23000

217

3500

19500

Received

3
1

19500
16000

225
325

3500
3750

16000
12250

0
0

10500
-

80
-

1
-

1
0

No
No

12250

22750

066

3250

19500

Received

19500

607

4250

15250

11250

22

No

10

11

12

13

14

15

16

17

18

19

20

15250

000

5200

10050

No

10050

21300

012

3150

18150

Received

18150

616

4250

13900

12600

66

No

13900

945

5000

8900

No

8900

21500

571

4250

17250

Received

17250

502

4000

13250

13250

29

No

1
2

13250
21300

971
788

5200
4700

8050
16600

0
0

0
-

No
Received

8050
-

16600

114

3450

13150

13350

83

No

13150

570

4250

8900

No

8900

213

3500

5400

No

5400

18750

113

3450

15300

11200

85

Received

15300

335

3750

11550

No

11550

324

3750

7800

No

7800

19000

722

4500

14500

12000

87

Received

14500

563

4250

10250

No

10250

149

3450

6800

No

6800

18800

099

3250

15550

10950

06

Received

15550

139

3450

12100

No

12100

23050

284

3750

19300

Received

19300

029

3150

16150

10350

55

No

16150

154

3450

12700

No

12700

23050

746

4700

18350

Received

18350

464

4000

14350

12150

55

No

14350

690

4500

9850

No

9850

22000

033

3150

18850

Received

18850

557

4000

14850

11650

91

No

14850

900

5000

9850

No

9850

945

5000

4850

No

4850

16500

443

3900

12600

13900

01

Received

12600

628

4250

8350

No

8350

22250

848

4800

17450

Received

17450

714

4500

12950

13550

13

No

12950

672

4500

8450

No

8450

21

22

23

24

25

26

27

28

29

30

31

22000

188

3500

18500

Received

18500

434

3900

14600

11900

05

No

14600

208

3500

11100

No

11100

23000

447

3900

19100

Received

19100

546

4000

15100

11400

82

No

15100

397

3900

11200

No

11200

540

4000

7200

No

7200

18600

477

4000

14600

11900

69

Received

14600

222

3500

11100

No

11100

23000

308

3750

19250

Received

19250

708

4500

14750

11750

47

No

14750

173

3450

11300

No

11300

23050

910

5000

18050

Received

18050

785

4700

13350

13150

29

No

13350

896

5000

8350

No

8350

21500

094

3250

18250

Received

18250

114

3450

14800

11700

19

No

14800

039

3150

11650

No

11650

23350

800

4700

18650

Received

18650

163

3450

15200

11300

92

No

15200

939

5000

10200

No

10200

594

4250

5950

No

5950

17250

838

4800

12450

14050

70

Received

12450

189

3500

8950

No

8950

23000

765

4700

18300

Received

18300

062

3250

15050

11450

50

No

15050

348

3900

11150

No

11150

22600

115

3450

19150

Received

19150

918

5000

14150

12350

83

No

14150

529

4000

10150

No

10150

823

4800

5350

No

5350

17700

288

3750

13950

12550

70

Received

13950

077

3250

10700

No

10700

32

33

34

35

36

37

38

39

40

41

42

43

23250

020

3150

20100

Received

20100

723

4500

15600

10900

78

No

15600

686

4500

11100

No

11100

22000

944

5000

17000

Received

17000

197

3500

13500

13000

35

No

13500

818

4700

8800

No

8800

21800

902

5000

16800

Received

16800

401

3900

12900

13600

75

No

12900

685

4500

8400

No

8400

22000

193

3500

18500

Received

18500

940

5000

13500

13000

44

No

13500

233

3500

10000

No

10000

23000

951

5200

17800

Received

17800

109

3450

14350

12150

33

No

14350

115

3450

10900

No

10900

23050

491

4000

19050

Received

19050

175

3450

15600

10900

84

No

15600

947

5000

10600

No

10600

425

3900

6700

No

6700

17600

024

3150

14450

12050

49

Received

14450

195

3500

10950

No

10950

23000

829

4800

18200

Received

18200

504

4000

14200

12300

18

No

14200

918

5000

9200

No

9200

21500

642

4250

17250

Received

17250

087

3250

14000

12500

49

No

14000

542

4000

10000

No

10000

22500

018

3150

19350

Received

19350

595

4250

15100

11400

79

No

15100

051

3250

11850

No

11850

23250

133

3450

19800

Received

19800

626

4250

15550

10950

42

No

15550

219

3500

12050

No

12050

23000

665

4500

18500

Received

44

45

46

47

48

49

50

51

52
Average
ending
inventory

18500

780

4700

13800

12700

47

No

13800

093

3250

10550

No

10550

23250

269

3750

19500

Received

19500

549

4000

15500

11000

78

No

15500

210

3500

12000

No

12000

23000

647

4250

18750

Received

18750

447

3900

14850

11650

17

No

14850

579

4250

10600

No

10600

22250

436

3900

18350

Received

18350

538

4000

14350

12150

30

No

14350

508

4000

10350

No

10350

22500

807

4700

17800

Received

17800

486

4000

13800

12700

34

No

13800

148

3450

10350

No

10350

23050

754

4700

18350

Received

18350

907

5000

13350

13150

50

No

13350

242

3500

9850

No

9850

23000

121

3450

19550

Received

19550

951

5200

14350

12150

88

No

14350

426

3900

10450

No

10450

115

3450

7000

No

7000

19150

029

3150

16000

10500

12

Received

16000

235

3500

12500

No

12500

23000

855

4800

18200

Received

18200

502

4000

14200

12300

55

No

14200

992

5200

9000

No

9000

21300

903

5000

16300

Received

16300

978

5200

11100

15400

25

No

14345

Avg. order

12155

Shortage=

Avg. daily
demand
Demand=

4052

16986

Performance of the current model =

13536

Average ending inventory in review


period

Average lead time =


Standard deviation of daily demand =

1.19

Mean demand during (T+L) periods =


609.85

Standard deviation of demand


during (T+L) periods =

1248.68

64%

Average Ending inventory just before the


day order received =

9542

Analysis of current model (Peak season):


1. Weve simulated the current model for 52 cycles (156 days) to get a steady state
condition.
2. Average daily demand is 4052 units.
3. Average lead time 1.19 days.
4. Average ending inventory is 13536 units.
5. Average ending inventory in review period is 14345 units.
6. The average ending inventory just before the day order received is 9542 units which is
about ((9542 100)/26500) = 36.01 % of the stock level and its quite high.
7. Average ending inventory in the review period is 14345 units its about (14345/4052)
= 3.54 times of the average demand which is also quite high!
8. There is no shortage condition.
9. Inbound-outbound performance of current model can be determined by following
manner, = (Total inventory outbound in T+L period/ Inventory level)
= (Current Inventory level - Inventory left in stock just before the day order arrive) /
(Current Inventory level)
= ((26500-9542)/26500)
= 64.00%
Problem identification from the existing inventory model:
1. As the average ending inventory is very high with respect to the stock level. For this
reason holding cost is very high which affects profitability.
2. Comparing with the demand during lead time and considering safety stock, average
cycle inventory is also very high which ultimately affects the total inventory cost.
3. As maximum inventory level is very high so that a large amount of space of total
capacity remains unused that affects the total inventory cost.
4. As the performance level is low thats why a large amount of capital will tied-up and
remain unused. Thats why an optimal policy is required to solve this problem.
Determination of an optimal Inventory level:
For periodic review policy Order up to level point is determined by, OUL= DT+L+SS
Where,
DT+L= Mean demand during T+L period
SS = Safety stock.
As because this model has no backordering system, thats why the safety stock should be
good enough to support the uncertainty of demand and lead time without stock out risk.
Thats why weve assumed the cycle service level very high for meeting any uncertainty of
demand and lead time without the risk of stock out. (This service level adopted by trial &
error method from observing its impact on proposed model)

In this case, we have,


Average daily demand, D = 4052 units
Standard deviation of daily demand, D = 609.85
Average lead time for replenishment, L = 1.19 days.
Review interval, T = 3 days.
Mean demand during T+L period, DT+L= (3+1.19) 4052 = 16986 units.
Standard deviation of demand during T+L period =
=

= 1248.68
SS= NORMSINV (0.99999999) Standard deviation of demand during T+L period
= 5.61 1248.68 = 7005.1 units.
So the Inventory level should be = DT+L + SS = 23991.1 24000 units

Proposed new Inventory level is 24000 units with the same demand pattern and lead
time.
The proposed models simulation is shown below,

Simulation of proposed model (Peak season): The beginning inventory is 16000 bags of cement and 8000 bags of cement order was already placed, the order will
reach the destination after 2 days.
Inventory level =
Cycle

24000

Beginning inventory =

16000

Initial order =

8000

Day

Beginning
Inventory

Random Digits
for Demand

Demand

Ending
Inventory

Shortage
Quantity

Order
Quantity

Random digit
for lead time

Generated
Lead time

Days until
Order Arrives

Order
received?

16000

730

4500

11500

No

Ending inventory
just before the
day order
received
-

11500

474

4000

7500

No

7500

18000

525

4000

14000

10000

49

Received

14000

266

3750

10250

No

10250

20250

086

3250

17000

Received

17000

620

4250

12750

11250

96

No

12750

986

5200

7550

No

7550

070

3250

4300

No

4300

15550

267

3750

11800

12200

86

Received

11800

903

5000

6800

No

6800

526

4000

2800

No

2800

15000

159

3450

11550

12450

64

Received

11550

886

4800

6750

No

6750

19200

438

3900

15300

Received

15300

869

4800

10500

13500

24

No

10500

860

4800

5700

No

5700

19200

517

4000

15200

Received

15200

862

4800

10400

13600

39

No

10400

328

3750

6650

No

6650

20250

752

4700

15550

Received

15550

215

3500

12050

11950

90

No

12050

749

4700

7350

No

7350

214

3500

3850

No

3850

15800

456

4000

11800

12200

02

Received

11800

498

4000

7800

No

7800

20000

662

4500

15500

Received

15500

050

3250

12250

11750

27

No

10

11

12

13

14

15

16

17

18

19

20

12250

338

3750

8500

No

8500

20250

380

3900

16350

Received

16350

096

3250

13100

10900

62

No

13100

919

5000

8100

No

8100

19000

249

3500

15500

Received

15500

868

4800

10700

13300

73

No

10700

641

4250

6450

No

6450

19750

402

3900

15850

Received

15850

737

4500

11350

12650

89

No

11350

893

5000

6350

No

6350

085

3250

3100

No

3100

15750

025

3150

12600

11400

98

Received

12600

278

3750

8850

No

8850

395

3900

4950

No

4950

16350

686

4500

11850

12150

81

Received

11850

275

3750

8100

No

8100

164

3450

4650

No

4650

16800

361

3900

12900

11100

30

Received

12900

628

4250

8650

No

8650

19750

720

4500

15250

Received

15250

358

3900

11350

12650

23

No

11350

362

3900

7450

No

7450

20100

408

3900

16200

Received

16200

069

3250

12950

11050

07

No

12950

287

3750

9200

No

9200

20250

867

4800

15450

Received

15450

644

4250

11200

12800

61

No

11200

400

3900

7300

No

7300

20100

292

3750

16350

Received

16350

910

5000

11350

12650

48

No

11350

256

3750

7600

No

7600

20250

099

3250

17000

Received

17000

840

4800

12200

11800

23

No

21

22

23

24

25

26

27

28

29

30

31

12200

480

4000

8200

No

8200

20000

572

4250

15750

Received

15750

736

4500

11250

12750

89

No

11250

545

4000

7250

No

7250

555

4000

3250

No

3250

16000

209

3500

12500

11500

98

Received

12500

424

3900

8600

No

8600

185

3500

5100

No

5100

16600

738

4500

12100

11900

92

Received

12100

686

4500

7600

No

7600

829

4800

2800

No

2800

14700

059

3250

11450

12550

72

Received

11450

393

3900

7550

No

7550

20100

117

3450

16650

Received

16650

769

4700

11950

12050

24

No

11950

331

3750

8200

No

8200

20250

269

3750

16500

Received

16500

269

3750

12750

11250

91

No

12750

515

4000

8750

No

8750

758

4700

4050

No

4050

15300

522

4000

11300

12700

63

Received

11300

025

3150

8150

No

8150

20850

264

3750

17100

Received

17100

988

5200

11900

12100

96

No

11900

190

3500

8400

No

8400

465

4000

4400

No

4400

16500

203

3500

13000

11000

20

Received

13000

935

5000

8000

No

8000

19000

324

3750

15250

Received

15250

969

5200

10050

13950

60

No

10050

270

3750

6300

No

6300

20250

128

3450

16800

Received

16800

933

5000

11800

12200

80

No

32

33

34

35

36

37

38

39

40

41

42

11800

340

3750

8050

No

8050

20250

061

3250

17000

Received

17000

553

4000

13000

11000

90

No

13000

980

5200

7800

No

7800

457

4000

3800

No

3800

14800

897

5000

9800

14200

99

Received

9800

351

3900

5900

No

5900

916

5000

900

No

900

15100

735

4500

10600

13400

42

Received

10600

247

3500

7100

No

7100

20500

091

3250

17250

Received

17250

987

5200

12050

11950

25

No

12050

428

3900

8150

No

8150

20100

254

3500

16600

Received

16600

718

4500

12100

11900

28

No

12100

200

3500

8600

No

8600

20500

768

4700

15800

Received

15800

681

4500

11300

12700

84

No

11300

898

5000

6300

No

6300

532

4000

2300

No

2300

15000

059

3250

11750

12250

50

Received

11750

990

5200

6550

No

6550

18800

032

3150

15650

Received

15650

315

3750

11900

12100

18

No

11900

181

3500

8400

No

8400

20500

344

3750

16750

Received

16750

321

3750

13000

11000

54

No

13000

961

5200

7800

No

7800

18800

807

4700

14100

Received

14100

145

3450

10650

13350

89

No

10650

413

3900

6750

No

6750

295

3750

3000

No

3000

16350

540

4000

12350

11650

12

Received

43

44

45

46

47

48

49

50

51

52

53

12350

393

3900

8450

No

8450

20100

593

4250

15850

Received

15850

178

3500

12350

11650

48

No

12350

835

4800

7550

No

7550

19200

487

4000

15200

Received

15200

420

3900

11300

12700

07

No

11300

248

3500

7800

No

7800

20500

001

3150

17350

Received

17350

912

5000

12350

11650

25

No

12350

750

4700

7650

No

7650

19300

139

3450

15850

Received

15850

150

3450

12400

11600

00

No

12400

726

4500

7900

No

7900

835

4800

3100

No

3100

14700

652

4250

10450

13550

82

Received

10450

128

3450

7000

No

7000

410

3900

3100

No

3100

16650

079

3250

13400

10600

43

Received

13400

860

4800

8600

No

8600

19200

154

3450

15750

Received

15750

909

5000

10750

13250

73

No

10750

991

5200

5550

No

5550

18800

398

3900

14900

Received

14900

531

4000

10900

13100

30

No

10900

849

4800

6100

No

6100

19200

355

3900

15300

Received

15300

734

4500

10800

13200

12

No

10800

500

4000

6800

No

6800

20000

308

3750

16250

Received

16250

024

3150

13100

10900

82

No

13100

253

3500

9600

No

9600

315

3750

5850

No

5850

16750

501

4000

12750

11250

50

Received

54

55

56

57

58

59

60

61

62

63

64

12750

615

4250

8500

No

8500

19750

701

4500

15250

Received

15250

487

4000

11250

12750

41

No

11250

717

4500

6750

No

6750

19500

340

3750

15750

Received

15750

969

5200

10550

13450

31

No

10550

581

4250

6300

No

6300

19750

787

4700

15050

Received

15050

625

4250

10800

13200

43

No

10800

690

4500

6300

No

6300

19500

688

4500

15000

Received

15000

288

3750

11250

12750

56

No

11250

997

5200

6050

No

6050

18800

842

4800

14000

Received

14000

502

4000

10000

14000

48

No

10000

730

4500

5500

No

5500

19500

289

3750

15750

Received

15750

394

3900

11850

12150

28

No

11850

028

3150

8700

No

8700

20850

626

4250

16600

Received

16600

730

4500

12100

11900

21

No

12100

202

3500

8600

No

8600

20500

084

3250

17250

Received

17250

414

3900

13350

10650

53

No

13350

270

3750

9600

No

9600

20250

880

4800

15450

Received

15450

128

3450

12000

12000

25

No

12000

222

3500

8500

No

8500

20500

979

5200

15300

Received

15300

105

3450

11850

12150

74

No

11850

236

3500

8350

No

8350

20500

005

3150

17350

Received

17350

428

3900

13450

10550

83

No

65

66

67

68

69

70

71

72
Average
ending
inventory

13450

909

5000

8450

No

8450

232

3500

4950

No

4950

15500

817

4700

10800

13200

17

Received

10800

679

4500

6300

No

6300

19500

501

4000

15500

Received

15500

283

3750

11750

12250

04

No

11750

978

5200

6550

No

6550

18800

644

4250

14550

Received

14550

257

3750

10800

13200

19

No

10800

737

4500

6300

No

6300

19500

130

3450

16050

Received

16050

758

4700

11350

12650

21

No

11350

330

3750

7600

No

7600

20250

338

3750

16500

Received

16500

608

4250

12250

11750

52

No

12250

870

4800

7450

No

7450

19200

410

3900

15300

Received

15300

240

3500

11800

12200

85

No

11800

862

4800

7000

No

7000

316

3750

3250

No

3250

15450

693

4500

10950

13050

99

Received

10950

749

4700

6250

No

6250

213

3500

2750

No

2750

15800

386

3900

11900

12100

82

Received

11775

Avg. order

12225

Avg. daily
demand
Demand=

4087

10526

Average ending inventory in


review period

Average Ending inventory just


before the day order received =
Average lead time =

1.35

6403

Performance of
proposed model =

Shortage=

73.32%

Analysis of the proposed inventory model:


1. Weve simulated the proposed model for 72 cycles (216 days) to get a steady state
condition.
2. The new model has 2500 units less inventory than the existing model.
3. Average daily demand is 4087 units. (Almost same as the existing model, 4052 units )
4. Average lead time 1.35 days. (Greater than the existing model by 1.35-1.19 = 0.16
days)
5. Average ending inventory is 10526 units, less than the existing model by (1353610526) = 3010 units
6. Average ending inventory in review period is 11775 units, in existing system its
about 14345 units! (2570 units less than the existing system)
7. The average ending inventory just before the day order received is 6403 units which is
about ((6403 100)/24000) = 26.68 % of the stock level, less than the existing model
by (36.01-26.68) % = 9.33 %!
8. Average ending inventory in the review period is 11775 units its about (11775/4087)
= 2.88 times of the average demand which is less than the existing model by (3.352.88) = 0.47 times!
9. There is no shortage condition.
10. Inbound-outbound performance of current model can be determined by following
manner, = (Total inventory outbound in T+L period/ Inventory level)
= (Current Inventory level - Inventory left in stock just before the day order arrive) /
(Current Inventory level)
= ((24000-6403)/24000)
= 73.32% (> than the existing model by 73.32-64.00 = 9.32%)
11. So weve reduced about ((2500
)/26500) % = 9.43% inventory than the existing
model.
Advantages of the proposed inventory model:
1. In our proposed inventory model the average ending inventory is less than the existing
inventory model which will reduce inventory holding cost.
2. Comparing with the demand during lead time and considering safety stock, this
prosed model has less average ending inventory than existing inventory model. It will
help to reduce capital wastages.
3. Stock level can be reduced about 9.43 % without any shortage condition.
Conclusion:
The strategy that supercrete cements dealer is following for their inventory system,
results unnecessary cost which might hamper their overall profitability. As their
inventory stock level is relatively very high than customer demands, so in this case,
our proposed inventory model will help to balance the inventory stock level to satisfy
the customer demand in an optimum way both in off season and peak season.

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