Analysis of Dynamic Properties of an Inventory System with Service-sensitive Demand Using Simulation

Complexity of many problems solvable by analytical methods quickly increases under additional assumption. Inventory management under the service-sensitive demand is one of such practical problems. This paper considers application of the hybrid simulation/analytical approach for dealing with this problem. The appropriate closed loop model, that incorporates both simulation and analytical models, has been developed. It has been applied to study behaviour of the inventory system under the service-sensitive demand. The regression analysis conducted indicates that the service-sensitive demand causes substantial deviations of the provided service level from the target service level. The target service level, the demand variability and the lead time are factors substantially influencing the difference between the target service level and the provided service level. The results obtained are to be used for design of a mechanism for adjusting the parameters of the inventory system in order to maintain the target service level.