BUILDING A STOCHASTIC INVENTORY MODEL FOR DETERIORATING ITEMS WITH SERVICE LEVEL CONSTRAINT USING SIMULATION MODELING

We consider an inventory system with one warehouse which faces independent Poisson demand. Inventory items are deteriorating at a constant rate and lead times are stochastic. Shortage is allowed and all the unsatisfied demands are backlogged. In addition replenishment is one for one. Our objective is to minimize long-run expected costs. To guarantee a specific service level, a constraint has been considered. We develop the analytical model for deterministic lead time. Since the stochastic lead time model is complicated especially when lead time has non exponential distribution and it is difficult to prove convexity of the model, we have established simulation model which has no limitation for lead time or any other parameters. We validate our simulation model by comparing simulation and analytical models' results when lead time is deterministic. There is not significant differences between simulation model and mathematical model results. Furthermore, we try to find near optimal solutions for a number of examples with stochastic lead time by applying optimization module of the applied software.