This article contains instructions for using a Monte Carlo inventory management simulator which can be opened in a new browser tab by clicking here or by clicking on “Simulator” in the menu at the top of the page.
It is suggested that you read the article entitled “Inventory Management Simulation” if you have not already done so.
The smoothing constant is for exponential smoothing which is the forecasting technique used by this simulator. If you enter 0 (zero) which is the default then the simulator will use an appropriate value for the smoothing constant. That value will be set using the other information which you enter.
“a” and “b” are the parameters of a model of the standard deviation of daily demand. The model concerned generally provides a very good fit in practice. Detailed information about the model will be given in an article in this blog. In the meantime, it is suggested that you use the defaults, viz. 1.8 and 0.6 respectively.
The coefficient of variation of the supplier lead time is the standard deviation of the supplier lead time divided by the mean (“ordinary” average) supplier lead time. I am planning to develop a facility for measuring it. In the meantime, it is suggested that you use the default, viz. 0.4. The supplier lead time is the time from when an order is placed until when the goods are received. Note that the lead time consists of the supplier lead time plus the delays mentioned below plus the remaining part of the reorder review period.
The time between forecast updates is the time between successive occasions on which the exponential smoothing is carried out. For instance, if the exponential smoothing is applied to weekly demands then the time between forecast updates is seven days.
The mean supplier lead time for the item should be entered.
The “delays” are
- the amount of time between the effective date of the data which is used for preparing an order and the time when the order is sent to the supplier and
- the time between when goods arrive and when they are available for issue.
The mean demand per year should be entered. It does not have to be a whole number.
Click on the “fixed reorder point and maximum” check box if you want to specify the reorder point and maximum rather than have them set on the basis of the demand forecast and the information which you provide.
For “safety stock (days supply) or fixed reorder point”, enter the reorder point which you want to be used if you clicked on the above-mentioned check box. Otherwise, enter the number of days safety stock which you want to be used. Note that the number of days is as described in the article entitled “Days Cover“.
For “maximum minus ROP (days supply) or fixed maximum” enter the desired difference between the reorder point and the maximum if you did not click on the above-mentioned check box. Otherwise, enter that desired difference in terms of days supply.
Clicking on the “Simulate” button will cause the simulation to be carried out. The results will be displayed below the “Simulate” button.
I intend to write an article containing detailed information concerning the above simulator.