Optimal Inventory Level and Warehouse Pooling: Case study of Coating Substances Manufacturer’s Warehouse in Europe

Abstract

In this independent study, we want to determine the optimal inventory level in order to maintain an acceptable service level of coating substances manufacturer’s warehouse in Europe.  We also study the effects of warehouse pooling, e.g., the reduction of inventory and storage costs. We consider the current inventory policy: We collect relevant data in 2016 and 2017 and calculate the inventory level from Periodic Review, Order-Up-To-Level (R, S) to obtain the appropriate inventory level.  We use a moving average to forecast demand in each period to determine an appropriate order-up-to level (OUTL).  We simulate the replenishment system with the actual demand in 2017 to find the average inventory value and storage cost. The results of the fixed OUTL shows that inventories decrease by 46% or 54 million baht per month, the storage cost decreases by 36%, or 8.6 million baht per year meanwhile we are able to maintain the 95% service level for the main products.  Whereas the result of active OUTL from 6 months moving average demand shows a better result that inventories decrease by 48% or 56 million baht per month, the storage cost decreases by 37% or 8.8 million baht per year while we are able to maintain the 95% service level for main products.  The result of warehouse pooling shows that inventories decrease by 57% or 77 million baht per month, 10% lower than the inventories kept at independent warehouse.  The storage cost decreases by 72% or 18 million baht per year; the saving is more than 2 times of independent warehouse.