System dynamics simulation to determine safety stock for a single-stage inventory system

Abstract

In this paper, a single-stage inventory system, which analytical method results exist in previous literature is considered. This case is one of an adaptive base-stock policy for a single-item inventory system, where the demand process is no-stationary. The demand process is modeled as an integrated moving average process for which an exponential-weighted moving average provides the optimal forecast. The case study objective is about how characterize the required inventory and how identify the safety stock requirements. For this purpose, a system dynamics approach is developed through a flow diagram model and simulated using Vensim® software. The results of the comparative study show that system dynamics approach is very useful. The system dynamics models can provide increased comprehension of, and improved insight into, the performance of an inventory system. The extension of system dynamics seems very interesting for the analysis of complex supply chain problems. In fact, analytical methods are perceived to be unhelpful by management or may require oversimplification.