Philippine E-Journals

Utilizing Simulation to Build a Retail Store Inventory Optimization Model

Vicente Salvador E. Montano | Michael E. Carter Ii

Discipline: Economics, Business

 

Abstract:

The researchers build an inventory model for retail stores by validating their economic order quantity through data driven simulation. This paper created an inventory optimization model for a personal care retailing business, to avoid stock out and minimize their holding cost and ordering cost. Simulating a thousand different scenarios, the research come up with an optimal inventory model for the two most sellable products in the store. The t-test reveals that product A has a significantly higher demand than product B. The simulation model validates the optimal order quantity of 59 units, with a reorder point of 25 units for product A. However, the simulation model recommends an optimal order quantity of 37 units and a reorder point of 10 units for product B. The Kolmogorov-Smirnov Goodness of Fit Test reveals the normal distribution of the 30 days inventory for Product A but not for Product B. Confirming that stocks out will unlikely happen for product A but will probably occur for product B. The model confirms EOQ findings of product with relatively high demand but low price but a departure for products with low demand but the high price.