Inventory Policies Under Service Level Target: Comparison in Terms of Relevant Costs and Bullwhip Effect

Abstract

Global shifts in technology and demand patterns might necessitate a firm’s switching to another inventory management system. The following five popular types of inventory policies are compared in terms of their impact on relevant inventory costs and bullwhip effect: newsvendor, order-up-to, min-max, reorder-point order-quantity, and economic order quantity. The model of four-stage supply chain presented in this research consists of a retailer, a wholesaler, a distributor, and a supplier. The objective of each member of the supply chain is to set order quantities and reorder points that maintain a required service level of inventory over multiple periods for each policy. Analysis and numerical experiments confirm differences in outcomes between the policies. Comparisons between each policy reveal policies that incur the highest or lowest values of the inventory cost, shortage costs, holding costs, setup costs, variability, and bullwhip effect. The study also provides findings about the possibility of lower bullwhip effect or even its absence with certain inventory policies.