Page 32 - DCAP601_SIMULATION_AND_MODELING

Simulation and Modelling

Notes (Since we are intereste.d in simulation here and not in inventory theory, we will not investigate
the reasonableness of the replenishment policy too critically. Ours is undoubtedly a very
simplified model.)
The problem does not easily lend itself to an analytic solution; it is best therefore to solve it by
;imuiation. Let us simulate the running of the store for about six months (180 days) under each
of the five policies and then compare their costs.
A simulation model of this inventory system can be easily constructed by stepping time forward
in the fixed increment of a day, starting with Day 1, and continuing up to Day 180. On a typical
day, Day i, first we check to see if merchandise is due to arrive today. If yes, then the existing
stock S is increased by Q (the quantity that was ordered). If DEM is the demand for today, and
DEM  S, our new stock at the end of today will be (S – DEM) units. If DEM > S, then our new stock
will be zero. In either case, we calculate the total cost resulting from today's transactions, and
add it to the total cost C incurred till yesterday. Then we determine if the inventory on hand plus
units on order is greater than P, the reorder point. If not, place
Cost of Inventory Policy (P, Q)

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