A real-time inventory decision system using Western Electric run rules and ARMA control chart

Inventory management is an important area of production control. In 1999, Pfohl et al. [Pfohl, H.-C., Cullmann, O., & Stölzle, W. (1999). Inventory management with statistical process control: Simulation and evaluation. Journal of Business Logistics, 20, 101–120] developed a real-time inventory decision support system by using the individual control charts for monitoring the inventory level (i.e., stock quantity) and the market demand, in which a series of decision rules are provided to help the inventory manager to determine the time and the quantity to order. In the present paper, a real-time inventory decision system is proposed by incorporating Western Electric run rules into the decision rules of the system. Since the data of demand sometimes present a pattern of time series (i.e., autocorrelation may exist in the data of demand), in the proposed decision system the ARMA control chart is employed to monitor the market demand and the individual control chart is used to monitor the inventory level. A simulation study is conducted to investigate the effects of demand pattern and autocorrelation on the proposed inventory decision system and to verify the effectiveness of the system. The index “service level” is selected as the key indicator for the system performance. Based on the results of the simulation study, it is shown that the performance of the proposed inventory decision system is quite consistent with service level always greater than 90% for various demand patterns.