Periodic Review Inventory Management with Budget Constraints: Discrete-Event Simulation and Sensitivity Analysis

In this study, a periodically reviewed inventory system with an order-up-to-level policy and budget constraints is considered. A discrete-event simulation model is developed to identify the optimal operating conditions, in terms of reorder period (DT) and order up to level (OUTL). Two different scenarios, characterized by different unit costs, are considered. A sensitivity analysis is finally conducted to evaluate the impact of procurement lead time and budget constraints on optimal conditions. A linear correlation between optimal DT and optimal OUTL is found and the equation of the line is derived as a function of the average daily demand and procurement lead time.