Determining the optimum inventory level of a production line - a case study on an umbrella manufacturing company in Sri Lanka

The top level management often addresses the capacity, inventory, demand, and customer satisfaction as separate decisions which lead to sub optimization of financial results and conflict of interests. Therefore this study considers the above variables simultaneously. The objective is to minimize the cost of production and lost demand. Cost of loss demand was included through the service level which is the probability of not being stock out. The SKUs are grouped into three based on their revenue contribution and allocated the service level. The production capacity varies mainly due to the number of working days and working hours, therefore will be a sub problem within the model. The optimization model was developed as a linear programming model as used Excel Solver to identify the optimum solution. The developed model generates the optimum cost compared to the current level by identifying an equilibrium between the cost of production and loss demand