A simulation of a multi-item drug inventory system

A simulation model can be used for determining inventory order ing policy in a regional drug warehouse of Kupat—Holim — the largest provider of health services in Israel. This is a multi-item system with stochastic demand and lead time, periodical order ing, fixed ordering costs, and shortage and holding costs vary ing from drug to drug. Current ordering policy takes place monthly according to the subjective judgment of the regional chief pharmacist; this can lead to a high frequency of shortages. Two important points - to minimize the total costs and to decrease the probablities of shortages - were studied by this model. Two policies were considered: <QT> where at each period T, a fixed quantity Q_i of drug i is ordered; and <r,R,T> where at each period T the inventory level of each drug i, is reviewed if it is under r _i an order is placed up to the level R_i. It was found that the <r,R,T> policy is preferred, the total cost is reduced significantly, and the probabilities of shortage for most drugs dropped to zero.