EXPEDITIONARY LOGISTICS WAREHOUSE INVENTORY OPTIMIZATION

The Personal Gear Issue (PGI) Division at each Expeditionary Support Unit is responsible for ordering, inventory management, and distribution of all personal gear issued. This work adapts an existing optimization model to determine appropriate ordering policies, specifically, the order point, s, and order quantity, Q, for each line item. The model seeks to minimize cost of inventory subject to target fill rate for each item, maximum number of orders per month, and other constraints. We consider realistic conditions such as current demand, 90 orders per month, and 99% fill rate. Under these conditions, the optimal s and Q values result in a significant reduction in the cost of inventory, from $8.2M (current PGI’s inventory value) down to $1.23M. In addition, our model shows, via sensitivity analysis, the effect that varying fill-rate targets, monthly order limit, and demand have on cost. For example, we observe a nonlinear increase in cost as a function of demand increase. We recommend that PGI Division revises its ordering policy to include formal optimization analysis and to periodically track demand in order to re-evaluate the optimal s and Q values.
http://archive.org/details/expeditionarylog1094560392
Lieutenant Commander, United States Navy
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