Aligning Aggregate Planning with (s,S) Inventory Model in a Stochastic Demand Environment

Abstract

Designing an aggregate plan is essential for firms to improve the efficiency of their inventory management as well as maintaining supplier relationships over a long run. Aggregate plan is primarily a function of demand uncertainty and the inventory policy in place. Firms tend to follow either a periodic review model ( system) or a perpetual model ( system) for managing inventory time to time; the former being more prevalent due to lower inventory monitoring costs associated. The article proposes a mathematical model that incorporates the principles of inventory model in deciding on the key components of an aggregate plan for each period in a multi-period stochastic demand environment for both stationary and non-stationary demand scenarios. The article also provides numerical illustrations to demonstrate the application of the model.