Computer Simulation and Modeling - A Tool for Inventory Management

This paper is intended to illustrate the use of computer simulation and modeling to aid decision making in the area of inventory management. Four actual examples will be used to demonstrate the practical application of these techniques. As inventories become a major portion of a corporation's asset position, as they have in most corporations today, the proper use of modern inventory management techniques is of paramount importance. Raw material inventories are essential to the manufacture of the final product. Finished goods inventories are essential to the sale and support of that product. It is the inventory manager's responsibility to insure that the objectives stated above are met with the least possible amount of capital investment. As gains are made in achieving these end objectives with less capital investment, the corporation can direct that investment in other beneficial areas. The basic goal of computer simulations and models is to be able to ask "what if" questions and accurately project the results. What a wonderful concept! A manager can propose solutions to a problem and accurately predict the outcome without actual implementation. The ability to accurately predict the outcome is "the report card" of these simulations and models. A great deal of time and energy must be applied to make these solution evaluators as accurate as possible.