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Use non-linear programming to find the optimal ordering policy that minimizes capital, transportation and storage costs

Procurement management is a strategic approach to acquiring goods or services from preferred vendors, within your determined budget, either on or before a specific deadline.

Your target is to balance supply and demand in a manner to ensure a minimum level of inventory to meet your store demand.

In this Article, will present a simple methodology using Non-Linear Programming to design an optimal inventory replenishment strategy for a mid-size retail store considering

• Transportation Costs from the Supplier Warehouse to the Store Reserve ($/Carton)
• Costs to finance your inventory (% of inventory value in $)
• Reserve (Store’s Warehouse) Rental Costs for storage ($/Carton)

As a Store Manager of a mid-size retail location, you are in charge of setting the replenishment quantity in the ERP.

For each SKU, when the inventory level is below a certain threshold your ERP is sending an automatic Purchase Order (PO) to your supplier.

You need to balance with the constraints of stock capacity, transportation costs and cost of inventory to fix the right quantity for your PO.

Which Quantity per replenishment Qi should you set in the ERP to minimize the total costs?

This repository code you will find all the code used to explain the concepts presented in the article.

Senior Supply Chain Engineer with an international experience working on Logistics and Transportation operations.
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