Dynamic modeling of an inventory system to minimize of inventory cost

Abstract

Recently business competition is getting tougher, especially concerning the fulfillment of consumer needs. Unstable market demand is often a challenge for companies in fulfillment of market demand. The study was conducted at PT TSJ, and the problem is when the supply is higher than the demand, the company will have to bear the holding cost. Meanwhile, when inventory is lower than the demand, the company must bear the cost of a product backlog. This research uses a dynamic system method with three scenarios: real situation scenario, raising the safety stock and reducing lead time. Results of the simulation are based on a real situation that shows the lead time from distributors to retailers and distributor safety stock has a major effect on the costs borne by the distributor and the longer the safety stock; results of the increase of the safety stock scenario shows that the backlog costs are reduced but the product as inventory at the distributor increases and thus the saving costs increases, and the result of reducing the lead time shows that holding cost at distributor reduced. The conclusion of this research shows that the best scenario to minimize the total cost is to reduce lead time.