Determination of Optimal Safety Stock Policies and its Application in Industry

Abstract

In this paper, I have shown that settling for a satisfactory solution is not enough. Production and inventory management decisions are highly complex and subject to uncertainty. They are influenced by the aforementioned cognitive and environmental variables. Managers may gain a time advantage in seeking approximate solutions rather than optimal solutions to their inventory control problems. Nevertheless, these approaches do not minimize the overall inventory cost and do not take the consequences of environmental uncertainty into consideration. Over the long run, the firm might be vulnerable to losing its competitive position in the market place. For example, consider the intense competition that exists among the US based major megaretailers, such as Wal-Mart, K-Mart, and so on. In these and similar situations, managers need to improve the quality of their inventory policies. Deciding to use optimal inventory policies such as those presented here do not take much additional manager's time and can dramatically improve the firm's ability to gain a competitive advantage.