A simulation study of WIP inventory drive systems and their effect on financial measurements

Abstract

This simulation study explores and compares the potential benefits of three work‐in‐process (WIP) inventory drive systems and their associated inventory buffer characteristics. The three inventory drives are a push, a pull and a hybrid push/pull system. While these systems have some aspects in common, their buffer management systems vary. The statistical analysis associated with the study was based on data gathered from three computer simulated flow‐shop assembly line environments. Hypotheses concerning the financial performance measurements were established. The independent variables were controlled and manipulated for each of the models. From the statistical analysis, a conclusion was drawn as to which system would afford the operation optimum results. While inventory has traditionally been considered and is currently being shown as an asset from an accounting point of view, it is obvious from the findings of this study, that excess WIP inventory, above the minimal requirements for production, will have a negative effect on the financial measurements evaluated in this study.

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