Optimal Inventory Policy for Stochastic Demand Using Monte Carlo Simulation and Evolutionary Algorithm

Abstract

Research on inventory models has been conducted intensively, including the model for stochastic demand. However, inventory models for stochastic demand are not easy to solve using an exact algorithm. In this paper, we develop a Monte Carlo simulation method to solve inventory problems with stochastic and intermittent demand. Simulation is conducted to evaluate continuous and periodic review policies. The simulation models are optimized using the evolutionary algorithm. The models are applied to data from one bicycle shop in Indonesia for five different items. The result shows that the economic order quantity (R,Q) policy is better than the (s,S) policy for two items and it is better than the (S,T) policy for three items.

Keywords

• inventory
• stochastic demand
• monte carlo simulation
• evolutionary algorithm