Inventory Benchmarking: A Practical Application of Textbook Inventory Models
Open Access
- Author:
- Hazenstab, Caden
- Area of Honors:
- Supply Chain and Information Systems
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Robert Alexander Novack, Thesis Supervisor
John C Spychalski, Thesis Honors Advisor - Keywords:
- inventory
supply chain
reorder point
economic order quantity
simulation
continuous improvement - Abstract:
- As modern firms harness the power of advanced technology amidst a worldwide digital transformation, operational processes become increasingly complex. Automation, artificial intelligence, and enterprise-wide data strategies have reinvented the field of inventory management. Despite their impressive capabilities, these innovations are accompanied by various challenges. As identified by a U.S.-based supply chain solutions provider, one challenge is the inability to objectively evaluate the performance of inventory policies. This thesis confronts this challenge by providing a framework for deriving inventory benchmarks. Using data provided by the solutions provider, referred to as Company A, this work describes the process of implementing a two-part benchmarking approach: including policy calculation and performance simulation. The work is based on the premise that simplistic inventory models, like Harris’ EOQ model and the subsequent ROP model, are still relevant in operations management. The models are notably simplistic but are tried-and-true approaches to managing inventory. For this reason, the models are perfect candidates to provide benchmarks based in rudimentary inventory theory. They transcend the intricacies of modern practices. The model created for Company A using this two-part approach offers a variety of advantageous capabilities. It provides numerical confirmation for analysts that certain inventory policies are inefficient, which is especially useful for issues that arise from client-directed over-replenishment. In addition, the model enables exploratory what-if analyses and broader continuous improvement within inventory practices. The ultimate takeaway of this study is that firms should not lose sight of simplistic inventory approaches; it confirms the irrefutable applicability of simplicity in an increasingly complex world.