Edwin Masiror 18241785

Reflective report inventory basics

Reflecting on the simulations conducted of the adjustable wrenches and the rock salt which is a
representation of reality, by the use of the inventory simulation model that will react in the same
manner as reality when inventory management is conducted, the main aim of the reflection
report is to analyze the simulation runs over the twelve weeks and come up with strategies of
order quantity and reorder point while looking at having the smallest total inventory cost, which
include ordering cost, holding cost and lost opportunity cost as this are the main costs that every
business try to keep it at a minimum level to ensure profits are made(Ryzin & Mahajan 1999).
From my reflections in the simulation of the adjustable wrench, the demand is close to
predictable and also considering that it has a lower standard deviation of one, from the several
simulations I conducted the average demand was 20, considering that there are two decision
variables that is of order quantity and reorder point with two probability components that is the
weekly demand and the reorder lead time and ordering costs(Melouk et al. 2013). Before I
started my simulation there are six aspects I considered

Beginning inventory
Reorder point
Order quantity
Cost of placing an order
Holding cost per unit
Lost opportunity costs

I based my strategies looking at the three costs that is the ordering costs, holding costs and lost
opportunity costs, by realizing that the strategy that I would use would be focused on
anticipation of consumer demand(Glock 2012), by looking at future assumptions of demand by
looking at historical data and by this I anticipated the reorder level and since the ordering cost
was fixed whether one was ordering one single adjustable wrench or 100 adjustable wrenches
the reorder cost was $6.3 and the only way of reducing the ordering costs was by applying the
economic order quantity which is ordering 80 units of adjustable wrenches over a period of four
weeks while looking at making savings on ordering costs and increasing the holding cost since
the holding cost per unit is $0.04 and would translate to $3.2 for the EOQ of 80 units and much
cheaper when considering that I would have ordered weekly it would have increased inventory
costs. Since the reorder level and safety stock for the adjustable wrench is 2, having a reorder
level of 80 units every 4 weeks was economically viable as costs are reduced and the risks of
incurring lost opportunity costs are reduced since the safety stock is maintained at all times
during the 12 weeks of the simulation, from my simulations I managed to get inventory costs of
$32.74 by applying the economic order quantity, which reduces my ordering costs and
eliminates lost opportunity costs but increases the holding costs, but by a small margin
compared to the other two costs, specifically the lost opportunity costs which is $20.

Edwin Masiror 18241785

From the second simulation of rock salt I noticed that although the mean demand is
20 units the is a high standard deviation of 9 compared to the adjustable wrench
which had one, from this i denoted that orders can vary up to 9 times on average
meaning that the average might be 20 but it can get lower or higher by 9 units(van
Donselaar & Broekmeulen 2013). By knowing the main strategy is anticipation of
consumer demand and minimizing inventory costs and making them as low as
possible, I noticed that the main problem was determining the optimal
replenishment level and ensuring that I dont incur lost opportunity costs since from
my trials at the simulation I either encountered high holding costs since I was afraid
of lost opportunity costs or reducing the holding costs and incurring the lost
opportunity cost. The strategy I applied was to use the bell curve which shows the
probability of the stock falling under a certain level. While also using the economic
order quantity of 60 units every 3 weeks while having a reorder level of 41 units
including safety stock. I was able to keep the ordering costs down while increasing
the holding cost and since the rock salt simulation had a high standard deviation
some weeks had high holding costs or I was forced to reorder as the demand kept
shifting. From the simulations I was able to get inventory costs of $45.01 since the
rock salt simulation had a high standard deviation.

Edwin Masiror 18241785

References
Glock, CH 2012, 'Lead time reduction strategies in a single-vendorsingle-buyer
integrated inventory model with lot size-dependent lead times and stochastic
demand', International Journal of Production Economics, vol. 136, no. 1, pp. 37-44.
Melouk, SH, Freeman, NK, Miller, D & Dunning, M 2013, 'Simulation optimizationbased decision support tool for steel manufacturing', International Journal of
Production Economics, vol. 141, no. 1, pp. 269-76.
Ryzin, Gv & Mahajan, S 1999, 'On the relationship between inventory costs and
variety benefits in retail assortments', Management Science, vol. 45, no. 11, pp.
1496-509.
van Donselaar, KH & Broekmeulen, RA 2013, 'Determination of safety stocks in a
lost sales inventory system with periodic review, positive lead-time, lot-sizing and a
target fill rate', International Journal of Production Economics, vol. 143, no. 2, pp.
440-8.