A simulation-based optimization analysis of retail outlet ordering policies and vendor minimum purchase requirements in a distribution system

Abstract

This chapter presents an approach involving both discrete event simulation (DES) and optimization to address operational problems faced by a distribution system. In the system modeled, vendors may require minimum purchase requirements for each order. The model can be used to determine whether retail outlets should order product directly from the vendors, or through a centralized warehouse, as well as whether each retail outlet should violate its pre-specified inventory policy in order to meet vendor-minimum requirements. In addition, the model can be of use as an aid in negotiation with vendors with respect to minimum purchase requirements. The work is based on a project performed for an actual company with a centralized warehouse, located in Louisville, Kentucky, and 19 retail outlets, located throughout the United States.