| Firms search for inventory strategies which most successfully balance inventory cost and customer satisfaction, reflected in profit. Customer satisfaction depends upon the terms of sale as well as the quality of the product. Since delivery delays are costly for the customer, they are costly for the producers in a market where customers can choose to trade with the firm with the best delivery record.;In this study, the profits generated by four different inventory strategies are compared via simulation in a model in which producers search for the most profitible form of inventory strategy decision rule, while customers search for the shortest average delivery time for the product.;The inventory strategies studies are drawn from economic and operations research literature. They are embodied in the model in simple decision rules which define the behavior of the firms in any given simulation.;Inventory strategies seeking a desired level of final-goods inventory, a desired ratio of final-goods inventory to new orders, a level of inventory within an acceptable range and, alternatively, a desired rate of production are tested under conditions of different variability of demand, different capacity constraints, different production start-up costs, and different inventory costs. The firms are characterized as either adjusting fixed decision rules or adopting and rejecting different decision rules over time, in an effort to maximize profit.;Under conditions of trendless product demand, the fixed production rule becomes relatively more profitable as the variance of demand increases relative to its mean. However, as production start-up costs escalate, the acceptable inventory range rule becomes more profitable than the fixed production rule.;As costs increase, each rule becomes less profitable. However, the fixed production rule is least affected by production start-up costs, while the inventory range rule is least affected by inventory handling costs. Each of these becomes relatively more profitable as the cost increases.;From the customer's perspective, the inventory range rule is the most desirable because the good is supplied with a shorter average delivery time under this rule than under the other rules. However, as demand variance increases, the fixed production rule eventually becomes the most efficient rule according to this criterion.;The relative performance of rules is clearly dependent upon the conditions hypothesized. The object of this study is to investigate the general relationships between rule performance and market conditions, and to contribute to the development of a methodology for further theoretical and empirical research into inventory planning by the firm. |
