Introduction
Inventory management requires considering factors such as product type, demand, holding and ordering costs, among others. Finding a suitable replenishment strategy is necessary to prevent several risks. Carrying too much stock can elevate the holding costs and expose the company to unnecessary financial losses. In contrast, a business that lacks sufficient inventory cannot meet its customers’ demands. Strategies for managing the inventory of products like adjustable wrenches and rock salt differ due to the unique features of these items and customer needs.
Simulation Strategies
Strategy for Replenishment of Adjustable Wrench
The inventory management of adjustable wrenches was chosen based on the demand for the product. As seen in the inventory review (Fig. 1 in Appendix), the need for wrenches remained stable throughout the simulation, varying between 19 and 21 items, indicating a consistent number with minimal deviation. Thus, the chosen strategy was based on demand to lower the holding costs and keep the ordering costs predictable (Samson et al., 2019). The demand replenishment method enables a company to minimize costs by leveraging the predictability of consumer needs and reducing the likelihood of overstocking (Song, van Houtum, and Van Mieghem, 2020). As a result, the business consistently met customer demand, while the holding costs remained low during the 12 weeks.
Strategy for Replenishment of Rock Salt
The strategy for rock salt was more challenging as this product did not have a similarly stable customer demand. As seen in the simulation (Fig. 2 in Appendix), demand levels vary from 9 to 41 units, introducing unpredictability and necessitating a more complex replenishment model to minimize costs. The chosen method was based on the reorder point strategy, in which minimum and maximum stock levels were determined (Samson et al., 2019).
The simulation indicates that the minimum restocking point was approximately 20 units, while the maximum was between 40 and 44 units. These measures were chosen to support the varying demand and to prevent harmful inventory levels. The differing demand likely depends on changing consumer needs and the periodic restocking of rock salt, which varies according to the season or product use.
Comparison of the Strategies
As described above, the two reviewed products require different restocking strategies due to their unique features and customer behavior. Wrenches are products in stable demand and purchased in limited numbers due to their imperishability. Thus, the demand analysis is reflected in the chosen strategy for cost minimization. On the other hand, rock salt is a consumable product whose demand varies significantly from week to week, introducing unpredictability and posing a risk of a negative inventory level.
Thus, a safer strategy of picking a minimum reorder point is necessary to protect the company from being unable to meet customer demand. This choice leads to higher holding costs but also prevents a significant risk of consumer dissatisfaction, which could have more severe consequences for the business. Thus, the difference between the products and customer behavior determines the most effective strategy.
Reflection
Influence of Simulation Challenges on Perception of Inventory Management
The two simulation challenges have contributed to the idea that an in-depth analysis of the product and the customer is necessary to minimize costs. Without investigating the demand for a specific product, a manager can easily underestimate or overestimate the number of units needed for restocking. Both cases demonstrate that each product is unique, and replenishing all types of items cannot be based on a single strategy. Moreover, the challenges demonstrate that cost saving is not always directly connected to cutting holding costs. In the example of rock salt, it was impossible to lower holding costs similarly to wrenches due to the varying demand.
Factors Determining the Size of Order
Therefore, the strategy was based on satisfying customer needs and avoiding long-term losses due to consumers not engaging with the business. Based on these factors, the order size should be determined, considering the firm’s budget, customer demand, holding costs, and ordering costs. However, demand should not be viewed as a static number, but rather as a flexible point that requires planning and trend analysis to anticipate changes.
Conclusion
In conclusion, the present simulation demonstrates how various replenishment strategies can be employed to restock goods based on their characteristics and consumer needs. The chosen products require individual approaches based on how customers interact with them. Inventory management should strive to cut costs by investigating demand and lowering holding costs.
At the same time, cost optimization should not be conflated with minimal restocking; instead, it should acknowledge customer demand as the foundation for decision-making. Without adapting to changing customer demand, the manager risks losing money due to a low supply of goods and the inability to sell products when consumers need them.
Reference List
Samson, O.O., Afolalu, S.A., Ojo, S.F. and Oladipupo, S. (2019) ‘Inventory replenishment in multi-stage production setting under stochastic demand: a review’, Journal of Physics: Conference Series, 1378(032072), pp. 1-6. Web.
Song, J.S., van Houtum, G.J. and Van Mieghem, J.A. (2020) ‘Capacity and inventory management: review, trends, and projections’, Manufacturing & Service Operations Management, 22(1), pp. 36-46. Web.
Appendix
