Simulation-Based Inventory Sharing Policy Optimization: A Case Study In Cosmetics Industry

Abstract

When multiple retailers hold inventory to satisfy random demand, retailer inventory-sharing strategies can potentially reduce the supply-demand mismatch and increase overall supply chain performance. This thesis research inventory sharing policies for a cosmetics company in Vietnam to achieve a system design with a decreased negative effect of demand uncertainty. In the thesis, a single echelon supply chain network with a main warehouse and five stores is under consideration under an (s, S) inventory control policy. Six inventory sharing designs are proposed and applied to the single item which contains the highest usage values and frequently under out-of-stock conditions. A simulation-based optimization method using ARENA with the OptQuest Optimization tool is developed. The approach optimizes the inventory parameters under those policies in terms of maximizing total network profit under a pre-defined fill rate constraint (i.e., 95%). Then a comparison is made with the company’s current practice to find possible savings. In comparison to the case in which there is no lateral inventory sharing policy in the network, the results suggest that lateral inventory share policies provide better outcomes.