Stochastic inventory control systems with consideration for the cost factors based on EBIT

Due to a short market life-span and high uncertainty in future demand, supply chain management is a competitive advantage which plays an important role in today`s global semiconductor industry. A very important consequence of uncertain demand and having long lead time is the great risk of incurring shortages and excessive inventory. This paper considers the view of the second tier semiconductor supplier in automotive industries and studies, using the periodic review analysis, a single item single stage inventory system with stochastic demand. The only uncertainty is associated with demand. Assuming holding, production, salvage and backorder costs, we determine the optimal numerical value of the level s (reorder point) using a simulation approach, and thus obtain the optimal inventory policy to minimize the total expected inventory cost while being able to achieve the desired customer service levels.