A Simulation Approach to Determine the Probability of Demand during Lead-Time When Demand Distributed Normal and Lead-Time Distributed Gamma

Abstract

Globalization and advances in information and production technologies make inventory management can be very difficult even for organizations with simple structures. The complexities of inventory management increase in multi-stage networks, where inventory appears in multiple tiers of locations. Due to massive practical applications in the reality of the world, an efficient inventory system policy whether single location or multi-stage location will avoid falling into overstock inventory or under stock inventory. However, the optimality of inventory and allocation policies in a supply chain is still unknown for most types of multi-stage systems. Hence, this paper aims to determine the probability distribution function of demand during lead-time by using a simulation model when the demand distributed normal and the lead-time distributed gamma. The simulation model showed a new probability distribution function of demand during lead-time in the considered inventory system, which is, Generalized Gamma distribution with 4 parameters. This probability distribution function makes the mathematical expression more difficult to build the inventory model especially in multistage or multi-echelon inventory model.

The Effect of Supply Chain Management Practices on Financial Performance via Analytic Hierarchy Process

“…The inventory management is further subdivided into overstocking situation, understocking situation (Ghafour, et al, 2014), and just-in-time (Yang, et al, 2007). Firstly, massive practical real-world applications of an efficient inventory system dictates whether single location or multi-stage location will avoid falling into overstocking situation (Ghafour, et al, 2014). Secondly, enormous practical applications of an efficient inventory system policy will also avoid falling into understocking situation.…”

“…Secondly, enormous practical applications of an efficient inventory system policy will also avoid falling into understocking situation. However, the optimality of inventory and allocation policies in a supply chain is still unknown for most types of multi-stage systems (Ghafour, et al, 2014). Thirdly, inventory management contributes to the success of SCM by minimizing the joint inventory cost.…”