Inventory Management in High Uncertainty Environment with Model Reference Control

In this study, the method of model reference control is used to implement a decision support system for inventory management. The inventory is controlled on the basis of minimizing variable costs while satisfying a certain percent of customer demand. Value-at-Risk analysis is used to determine the required safety stock for the controller, so that the uncertainties are buffered into the inventory. The handling of constraints is also investigated in simulations with four different inventory capacity limitations. Results from the simulations show how a model reference control based decision support system, combined with Value-at-Risk based safety stock determination, can operate within strict constraints while still satisfying a certain percentage of customer demand. Copyright c ©2005 IFAC