Determination of Inventory System Service Level by Simulation in Cases of Constant and Variable Demand and Lead Time

Abstract

Service level and standard deviation of demand and/or lead time is considered while calculating reorder point with safety stock if the demand and/or lead time vary. This study explores whether reorder point provides desired service level. To answer the question, a simulation model is developed in MS Excel for three different cases of constant/variable demand and lead time. The model has been executed for certain periods, and service level is calculated as 1 (number of backorders/number of order cycles). It is found that the calculated service level for Case 1 was significantly higher than the desired service level, while the calculated service level for Case 2 and Case 3 was slightly lower than the desired service level. The reason for the difference in Case 1 is investigated. After eliminating factors from the model, a mechanism was added to the discrete model to simulate the continuity of the system. This minimized the difference in Case 1, but the difference in Case 2 and Case 3 increased slightly.