The high cost of low inventory. An analysis of inventory-level policy at a cookies and rusk factory in the Netherlands using System Dynamics

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Inventory management is often complicated business. One has to balance multiple KPI’s and make decisions keeping multiple objectives in mind. More often than not, these decisions are rules of thumb rather than policies construed using a scientific and objective foundation. A case-study was done on the rusk and cookie factory of Bolletje, a food producing company in the Netherlands. This case-study took a closer look at the balance between the KPI’s “costs”, more costs resulting from higher inventory, and the KPI “service level”, a higher service level often being the result of having more stock on hand. Bolletje used a general rule that required inventory for one product to be as high as the forecasted demand for that product for the coming two weeks. A literature review revealed many alternative policies for inventory control, and a system dynamics model was built to assess these policies. In the end it the original policy appeared to perform quite well when compared to each of these alternative policies, mainly (but not only) because it was better suited to the operational conditions of the Bolletje production lines. Keywords: Inventory (-levels), Policy Analysis, System Dynamics, Inventory control Word count: 21.694, including tables and figures, excluding Index, references and appendices.
Faculteit der Managementwetenschappen