Simulation of Perishable Products Inventory Management Problem with Varying Order Cost by System Dynamics

Dependence of a product order cost to the order quantity is one of the practical and less surveyed assumptions of the literature of economic order quantity model. This assumptions will cause the goal function to be non-convex and increases the complexity of the problem model. Furthermore, inventory management of the products which are likely to be out of fashion or perished over time, has a great importance. In this regard, simulation of the inventory control model of perishable products has been considered in the present study via the stochastic demand of the product which depends on the time and price of the product. In addition, the dependence of the order cost to the order quantity and dependence of holding cost to the inventory level which are among the practical assumptions of the business world have been considered. These factors cause the usual mathematical solutions not to be able to solve the problem. Therefore, system dynamics have been used as a powerful, flexible, and practical solution to model and solve the problem. A numerical example is also presented to provide a better understanding of the simulation operation; and with the assistance of the optimization of the input variables (ReOrder Point, Order Quantity) the optimal amount of the objective function (Gross Cost Average) is reached. The results showed that the proposed replenishment policy can benefit the necessary decisions regarding inventory management and control of the perishable products.