Quantitative Analysis for Management, 13/e

13.3 Simulation and Inventory Analysis

In Chapter 6, we introduced the subject of “deterministic” inventory models. These commonly used models are based on the assumption that both product demand and reorder lead time are known, constant values. In many real-world inventory situations, though, demand and lead time are variables, and accurate analysis becomes extremely difficult to handle by any means other than simulation.

Simulation is useful when demand and lead time are probabilistic—in this case, inventory models like economic order quantity (in Chapter 6) can’t be used.

In this section, we present an inventory problem with two decision variables and two probabilistic components. The owner of a hardware store would like to establish the ...