There is now an online Monte Carlo inventory management simulator available for use. Clicking on the “Simulator” tab in the menu at the top of the page will open the simulator in a new browser tab. Click here for instructions for using it.
Each simulation is carried out for each day until there have been at least 1000 customer demands. Consequently, if an item is only sold about once per year then the simulation is for about 1000 years. I tried such a simulation using an eight year old laptop and it took a few milliseconds.
I developed the simulator because inventory management theory which is in widespread use involves theoretical assumptions which have limited applicability to the real world. The three main problems in that regard which are overcome by the simulator are as follows:
- Lead time demand is commonly assumed to have a normal distribution. That is highly inappropriate for infrequently moving items.
- Reorder review periods are not handled properly in widely used inventory management theory. This is a serious problem if the reorder review period is not small compared with the lead time.
- In the setting of safety stocks, the service level is usually treated as being the probability that there will not be a shortage during any particular order cycle. Most people regard the service level as being the percentage of demand which is satisfied immediately off the shelf. The two definitions are very different from each other.
Part 2 gives detailed information concerning how the simulator works.