Case of inventories: one buyer and two suppliers with stochastic demand and lead times

Abstract

An inventory case is presented with a buyer with standard product demand and two suppliers whose lead times are stochastic, one normal and the other uniform, with a restriction regarding the service level. The study’s objective is to define the order quantity and the reorder point, decision variables that minimize annual inventory costs, including the cost of shortages. The problem is solved through simulation with sufficient runs to determine optimal conditions. It is concluded that using both suppliers and reducing demand and lead time variability are preferable, highlighting the importance of such a study to improve organizational profitability.