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Modeling and Simulation of Inventory

Management System of Artistic Printing
Enterprise

Technical Report October 2014

DOI: 10.13140/2.1.5008.9762

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 Modeling and Simulation of Inventory Management
System of Artistic Printing Enterprise

Tesfaye Gashaw1, Kassu Jilcha1, Eshetie Birhan1

1Addis
Ababa University, Addis Ababa Institute of Technology, Addis Ababa, Ethiopia
tesgass@yahoo.com, jkassu@gmail.com,eshetie_ethio@yahoo.com

Abstract.

The purpose of this study is to utilize arena software and solve the problem of inven-
tory and utilization of resources problem. It is also to apply simulation in the design of
an inventory control based on managing beginning inventory, number of orders as well
as the utilization of resources in the printing process. Modeling of the management on
inventories has its own role for sound economic system of a company. Because math-
ematical models cannot accurately describe the complex system, simulation models
are used. In preliminary research a simulation model is built and optimized to obtain
the best strategy in combining inventory decision making and demand forecasting for
intermittent demand when there is only uncertainty in demand like the case company.
The printing process performance of the company is taken into account in optimizing
the inventory related costs as final output.

Keywords: Printing Process, Arena simulation, Inventory Management, Pro-

cess performance

1 Introduction
Simulation is the imitation of the operation of a real-world process or system over time.
Simulation involves the generation of an artificial history of the system and the obser-
vation of that artificial history to draw inferences concerning the operating character-
istics of the real system that is represented. It is an indispensable problem solving
methodology for the solution of many real world problems. It is used to describe and
analyze the behavior of a system, ask what-if questions about the real system, and aid
in the design of real system. Both the existing and conceptual systems can be modeled
with simulation [4].
Arena uses an entity-based, flowcharting methodology for modeling dynamic pro-
cesses. Most other commercial simulation products are code-based and require pro-
gramming in proprietary scripting languages, and many simulation products force you
concentrate primarily on animating a process rather than documenting it.
Arena is a Visio-compatible, flowcharting tool. Entities in an Arena model proceed
through a flow chart of the process and seize control of resource capacity as they are
processed. The flowchart approach to model building makes the most sense to engi-
neers and to process designers who must be able to carefully document a process in
order to accurately model it and analyze it. This results in models that become highly
detailed documents of the processes being studied.
With the entry of more and more companies in the market offering similar products,
the market share of existing organizations has reduced. Every new entrant comes with
new ideas, techniques and technologies. The market then witnesses competition in
every function of the organization. Many Organizations are now directing their efforts
towards retaining existing customers to increase profits. Inventory Analysis has, there-
fore, attained limelight considering the investments involved in maintaining and man-
aging Inventories. It has been observed that an increase in the profits is possible through
reduction of losses due to Inventory Mismanagement.[3]
In Inventory control, to provide efficient service to customers the problem of determin-
ing the optimal replenishment policy arises .The use of simulation enables a manager
to provide an insight into certain managerial problems where analytic solutions of a
model is not possible or where the actual environment is difficult to observe [1].
Design problems in production lines are primarily resource allocation problems. These
problems include workload allocation and buffer capacity allocation for a given set of
workstations with associated processing times. Generally, design problems are quite
difficult to solve in manufacturing systems. This is due in part to the combinatorial
nature of such problems.
Performance analysis of production lines strives to evaluate their performance measures
as function of a set of system parameters. The most commonly used performance
measures follow: throughput, average inventory levels in buffers, downtime probabili-
ties, blocking probabilities at bottleneck workstations and average system flow times
(also called manufacturing lead times). Using these measures to analyze manufacturing
systems can reveal better designs by identifying areas where loss of productivity is most
harmful [7].
Inventory management provides a flexibility and certainty to production and sales ac-
tivities. Beside advantages in holding inventory, other side of a coin is that it can be-
come very costly segment of a supply chain. Inventory management problems are char-
acterized by holding costs, shortage costs, replenishment delays and probabilistic de-
mand distributions for products. Inventory costs are just one group of total supply chain
costs and they encompass ordering costs, holding costs and shortage costs (that occur
if demand exists, but the product is out of stock). The deterministic inventory models
are limited because they treat all parameters relating to future operations as certain.
The major sources of uncertainty include demand over the delivery lead time and the
length of the lead time [8].
Many companies fail each year due to inadequate control of their inventory. Inventory
could be classified as raw materials (e.g., components, fuels etc.) used to manufacture
products, finished products, ready for final users or Work-in-Progress (WIP) that is,
partly finished goods and materials, sub-assemblies etc. held between manufacturing
stages.
Inventory problems can also arise if too few items are held in inventory, resulting in
loss of profits due to loss of sales and due to loss of goodwill consequent upon the
unfilled demands. Stock out (that is, cost due to lack of goods demanded) may result
incurring additional manpower and/or costs, actual cost to replenish inventory stock
may be excessive because stock must be ordered frequently and the manufacturing
plant being shut down as a result of lack of raw materials to work with. As with any
other investment, the cost of holding stock must be related to the benefits to be gained.
Hence the following costs are associated with inventory: carrying cost or inventory
holding cost, ordering costs and stock out costs.
Another important element of inventory control is called reorder point. Businesses
need to think ahead and calculate the best time for reordering products. Doing so too
soon may cause financial difficulties or running out of space [9]. In inventory control,
the problem of determining the replenishment policy due to uncertain demand and lead
time can be solved by simulation. Instead of trying manually the three replenishment
alternatives for each level of demand and lead time for a period of one year and then
selecting the best one, we process on the computer and obtain the results in a very short
time at a small cost.
During the past many years simulated models in inventory management are discussed
by many researchers. Donald.L.Byrkett[11]demonstrated the use of simulation in the
design of a forecasting and inventory control system. The use of alternate approximate
modeling strategies was simulated using an analytic simulation model of the real sys-
tem on a relatively large sample of parts. A simulation based decision support system
for multiproduct inventory control management is developed by Masood.A.Badri
[12]model in this system permits the management to obtain an inventory system wide
view of the effect of changes in decision variables on the performance measures of a
furniture manufacturing firm.
Research on inventory control simulation by Adegoke, Aimufua and Jegede [9] aims
at simulating the inventory control considering the economic order quantity. The Re-
searchers showed the optimization of total cost using appropriate order quantity.
The other research by Susanto, Almunawar, Aksoy and Chee Tuan [13] showed sim-
ulation on automotive inventory and stock issue, followed by evaluated performance
of automotive Sector Company, focused on getting optimum profit from supply and
demand balancing. The paper evaluated the performance of the service and the inven-
tory control in using cars.
This study on Modeling Inventory Management System at Distribution Company [14]
focused on application of different modeling approaches in inventory management un-
der uncertain demand, namely inventory models, simulation models and optimization
model. The researcher presented the use of optimization approaches together with sim-
ulation. Once the optimization solution is found, the system performance under the
optimized value can be tested by means of simulation model.

2 Material and Methods

This paper is done using Rockwel simulation software ARENA to simulate the inven-
tory management as well as printing process of the Enterprise. The methods used in
modeling and simulating the systems are:
Participants: Five operators and two shift leaders are participated in the data collection
and discussion.
Methodology of measurement: data collection is done in different shifts and stop watch
is used in measuring the processing time. Sampling method is adopted to get a better
result. Data are collected on customer arrival, demand of customers, printing, and page
arrangement, binding, trimming and packaging processing times per book.
Literature Survey: In order to give an insight about the work, literature review is pre-
pared in a most comprehensive manner.
Data Collection: The study was done by using primary data and secondary data:
Primary data (Physical observation, Preparing interviews and questionnaires related to
the work, Discussion with employees)
Data Analysis and Presentation of the Findings: the collected data are organized and
analyzed using ARENA simulation software to find important parameters. Then the
findings are interpreted more precisely.

3 Discussion and Results

The modules required for the modeling of inventory management and printing pro-
cesses are: create, assign, hold, decision, process, record and dispose module. The re-
sults of the simulation based on their respective models are:

3.1 Inventory Management Model

The inventory management of the company is determined by the level of inventory,
demand, order placed. The report of simulation run of replication length 10000 hrs
shows that the raw material requirement 14912.62 kg to print 64584 books. The num-
ber of customers during the replication length is on average 773. The determination of
the quantity of order and the beginning raw material inventory can be done with trial
and error using process analyzer.
 R_ Ra w m a t e ri a l

0 Up d a t e I n v e n t o ry 0
J o b Arri v a l Cu s t o m e r De m a n d Tr ue Ch e c k Ra w M a te ri a l Tr ue Pri n t i n g Ex i t
Ch e c k Ra w M a te ri a l ?
In v e n to ry ?
0 0

0 Fals e 0 Fals e

Pl a c e Ord e r

INVENTOR Y MANAGEMENT

De d u c t I n v e n t o ry 0
Bo o k Pri n t i n g Tr ue
Ra w M a t e ri a l Sh a l l we Pri n t? Ch e c k De m a n d ?

0 0
0 Fals e
St o p Pri n t i n g

PR INTING PR OCESS
Fig. 1. Inventory management and printing process model

3.2 Printing Process Model

The utilization of resources (machines and operators) shows the rate at which the re-
sources be busy during the simulation time. Minabinda machine utilization is about
48% busy in the aforementioned simulation run length. The operators in page arrange-
ment process operate with 62%. The other results are depicted in Appendix D
Generally, the report shows that the resource utilization of machines as well as opera-
tors are very low. Since the machines are old and there is no proper preventive mainte-
nance schedule, the failure of machines influences the process utilization and effi-
ciency.
The simulation report shows Number of Reworks 31492.00 and number of Scraps
38132.00. This shows that the enterprise has to make quality control in every process,
this will in turn decreases the final scrap and rework level otherwise.
 Pri n ti n g Ra w Pa g e Bi n d i n g
Arri v a l Ti m e we b Pri n ti n g
M a te ri a l Arra n g e m e n t
0
0 0
Nu m b e r o f re wo rk s

Pa c k a g i n g a n d
Di s p o s e 1
Labeling
Tri m m i n g C hec k Q uality of book ?
0
0
0

Ta l l y In te rd e p a rtu re
Ta l l y Fl o w Ti m e ti m e
Nu m b e r o f Sc ra p s
Co u n t Pro c e s s
Ti m e

Els e
89
5

Detail Printing Process of Books

Fig. 2. Detail printing process of books

3.3 Decision variables

The decision variables in the paper are reorder level, quantity of order placed, safety
stock as well as the mean repair times.

3.4 Data Analysis

Data collection is done for estimating model input parameters. The sequence of pro-
cesses, the processing time, and demand of books, the failure rate of machines, the
reorder level, safety stock and the required resources are collected during printing pro-
cess.
The inputs of the collected data are analyzed with input analyzer of Arena to determine
the distribution of these parameters. The fitness of these data is determined by taking
the smallest squared error of the distributions.

Operation: Web Offset machine process

Distribution: Triangular
Expression: TRIA(15.5, 19, 20.5)
Square Error: 0.011474
Fig. 3. Distribution fitness
 Fig. 4. Types of Distribution
Operation: Trimming processing time distribution
Distribution: Beta
Expression: 14.5 + 3 * BETA (1.15, 1.32)
Square Error: 0.000240

Table 1. Processing and Arrival Time Distributions

SN Operation Distribu- Expression Square Error
tion
1 Customer arrival Uniform UNIF(5,8) 0.010000
2 Customer Demand Dis- Uniform UNIF(8000,120000) 0.064444
tribution
3 Web Offset machine pro- Triangular TRIA(15.5,19,20.5) 0.011474
cess
4 Page arrangement Uniform UNIF(35,39) 0.037778
5 Binding Beta 22.5 + 10 * 0.045411
BETA(1.74, 1.81)
6 Trimming Beta 14.5 + 3 * 0.000240
BETA(1.15, 1.32)
7 Packing and labeling Beta 19.5 + 4 * 0.024040
BETA(0.982, 1.16)

3.5 Model assumption

Important assumptions considered in this simulation case:
Lead time is known and constant,
Receipt of inventory is instantaneous and complete
Quantity discounts are not possible
Only variable costs are setup and holding

3.6 Model Verification

During the model translation, it is ensured that the simulation model has all the neces-
sary components and that the model actually runs and checked the model operates as
intended. The verification process on the simulation model is done by trace and ani-
mation techniques. Moreover formulation of input parameters was checked to build
the model correctly.
Verification techniques adopted for this model:
Test with various combinations of input parameter values
Use trace, or step-by-step execution
 Observe the animation

Throughput Verification.

The verification of the model can be done considering the estimated throughput,
()
()1 = , where ()1 is throughput estimator for a given replication r
()
D(r) is the number of jobs processed to completion during replication r, and
T(r)is the length (duration) of replication r.
Hence from the simulation report, D(r)=599,913 and T(r)=10,000, the throughput es-
timator is 59.99 jobs per hour.
Another alternative estimate of the throughput using the mean inter-departure time
from the Tally is calculated as:
1
()2 =
( )
The simulation report of inter departure time is 0.01779762, hence the throughput es-
timator,
1
()2 = =56.17978
0.01779762
The above calculated throughput estimators are close to the initial value of arrival rate
i.e. 60 jobs per hour. Consequently, these verification facts support the contention that
the model is correct.

3.7 Model Validation

Validation assesses how realistic the modeling assumptions are, by comparing model
performance metrics (predictions), obtained from model test runs, to their counterparts
in the system under study. Simulation trials were done using process analyzer and the
closeness to the real data collected was checked to validate the model whether it was
a correct built model.
Validation activities are critical to the construction of credible models. The standard
approach to model validation is to collect data (parameter values, performance metrics,
etc.) from the system under study, and compare them to their model counterparts.
Model validation that has been followed are:
The results of the simulation model were discussed with the experts of the
enterprise who are experienced in this printing process.
The printing and inventory management systems structure and operation is
verified with users/operators of the actual system.
The model input of raw materials with the output of the model is compared
and it shows a good closeness with small variation.
3.8 Number of Replications
It is better to determine the number of replications for a precise simulation result. Since
the individual replication results are independent and identically distributed, the con-
fidence interval for true expected performance is calculated as:[15]

+ 1,1
2
Where is sample mean, S isis standard deviation, n is the number of replications and
1,1 is the upper critical point from students t-distribution with n-1 degree of free-
2
dom.
Set half-width = h
s2
n t n211
, / 2
h2
Considering the minimum half width of h=0.3 and 95% confidence interval =0.05,

Table 2. Comparison of replications Result

Number of Replication Simulation Result

1 1540
2 1541
3 1541
4 1542
5 1541
6 1541
7 1540
8 1540
10 1539
Average 1540.8
Standard deviation 1.48

From the t- distribution table, the value of t for df =9 and 0.025 area in the right tail is
2.262. Hence the number of replications will be 125.

4 Conclusion
Simulation should be seriously considered and favored as a very important tool for the
industry especially, in the area of inventory control. Simulation is a universal and im-
portant tool because it promotes automation and the success of industrialization de-
pends largely on it. Stock control should be embraced by every organization so as to
minimize operating costs.
Inventory control usually ensures effective and efficient utilization of assets of an or-
ganization, such as, raw materials, components, spare parts, tools, work-in-process,
consumables etc. and also paves way for the creation of valuable and quality product
on schedule and at minimum cost.
The paper on inventory management simulation evaluates the existing printing process
and inventory management of the enterprise. Based on the results of the simulation
runs, it is concluded that:
 the utilization of resources is very poor due to improper preventive maintenance
schedule and stock management
The quantity order is not placed considering the holding and set up costs, i.e.
order is placed when there is demand that leads to longer time for delivery of
prints.
the bottleneck has been identified with low utilization and high waiting line
there is no modern management system implemented that can improve the
productivity of the process and the inventory management system

5 References
1. Neetu:Simulation and its Applications in Inventory Control, Department of Math-
ematics, APJ College of Fine Arts, Jalandhar
2. Katrien Ramaekers, Gerrit K.Janssens: Modelling the Complexity of Inventory
Management Systems for Intermittent Demand using a Simulation-optimization
Approach, Hasselt University, Belgium
3. Aarti Deveshwar, Deen Bandhu Chhotu Ram: Inventory Management Delivering
Profits through Stock Management, University of Science and Technology, India
4. Jerry Banks: Handbook of Simulation Principles, Methodology and Advances,
1998 John Wiley & Sons,Inc.
5. Committee on Modeling and Simulation Enhancements: Modeling and Simula-
tion in Manufacturing and Defense Acquisition: Pathways to Success,2002, Na-
tional Academy of Sciences
6. Christopher A.Chung: Simulation modeling handbook, 2004 CRC Press
7. Tayfur Altiok, Benjamin Melamed: Simulation Modeling and Analysis with
ARENA,2007, Elsevier Inc.
8. Mleksandra Marcikic,Boris Radovanov: Simulation in inventory management,
Faculty of Economics Subotica ,University of Novi Sad, Serbia
9. G.K. Adegoke, G.I.O. Aimufua and A.J. Jegede: Computer Modeling and Simu-
lation for Inventory Control , 2012
10. http://www.stats.gla.ac.uk/steps/glossary/probability_distributions.html#unifd-
istn
11. D.L.Byrkett : Use of simulation in the design of an inventory control system. Pro-
ceedings of the 10th conference on winter simulation-Volume 2,IEEE computer
society Press Los Alamitos,USA ,1978
12. Masood.A.Badri : A Simulation Model for Multi-Product Inventory Control Man-
agement, United Arab Emirates,1999
13. Susanto, Almunawar, Aksoy and Chee Tuan:A Simulation Approach Paradigm:
An Optimization and Inventory Challenge Case Study,Indonesia,2012
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pany, Riga Technical University,2010
15. David Kelton, Simulation with Arena, second edition, Mc Graw Hill

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