Analysis of an Appropriate Inventory Policy to Maximize Expected Profit

Analysis of an Appropriate (s, S) Inventory Policy to Maximize Expected Profit
Your Names
Subject and Section
Date
Executive Summary
The scope of the project is to find the best s and S values to optimize the inventory policy of Dog Day Beds, the leading provider of dog crates in River Valley. During the inventory analysis of the current (5, 10) policy of the company’s inventory system, it was apparent that this project was an opportunity to help in maximizing the profit yield of the company while assuring customer satisfaction.
A descriptive mathematical tool and variable tabulation were made use to evaluate all the inventory policies to compare the profit yield of the different policies while taking into account the weekly inventory cost, the weekly order cost, and the lost sales due to shortage of supply that could potentially decrease the expected profit. The results lie on the systematic changing of the s and S values to calculate the computed results.
According to the findings, there are two policies analyzed that generated higher profit yield compared to the current system, which are (2, 10) and (3, 10). Further analysis of the findings indicate that the (3, 10) policy will yield the maximized expected profits among other s and S values tested during the study. The (3, 10) policy yielded an estimated 14.05 % increase in profit without penalty while an estimated 1.71% increase in weekly profit even if the total loses were accounted for as compared to the current (5, 10) policy. Also, the (3, 10) policy generated a lower inventory cost and weekly order cost compared to the current (5, 10) policy. About 37.41 % decrease in weekly inventory cost and 22.04 % decrease on the weekly order cost using the (3, 10) policy. Although using (3, 10) policies yielded increase in profit, there were greater computed fraction of supply shortage occurrence and the fraction of unsatisfied costumers compared to the (5, 10) policy, but the levels computed where minimal and will yield greater amount of profit compared to the current system.
Introduction
There are different models of optimizing the company's inventory system. One system is through the use of the (s, S) policy rule with 0
Results
This section describes the scenarios that yielded greater weekly profit with the percentage of supply shortages and customer satisfaction compared to the current system for premium crates that uses a (s, S) = (5, 10) policy. Descriptive mathematical analysis and tabulations where used to find the optimal (s, S) policies that can yield the highest profit. The analysis involved the use of scenarios that shows different (s, S) values to generate the weekly profits, including both profits with penalty due to loss order and no penalty profit, from the number of premium crates sold per week. The weekly cost and weekly cost order, as well as the loss due to shortage of supply and unsatisfied costumers, were accounted for in the computation of the profit yielded per week. The data collected from the mathematical analysis was then reconstructed in a table inputted by variables involve to be easily conduct a comparative reference among different (s, S) values.
From the initial analysis of the original policy (5, 10), it was compute...