Identifying the Optimum Warehouse Capacity Requirement: A System Dynamics Approach

This paper deals with the development of a System Dynamics model for the trading system. Simulation is carried out for identifying the optimum space required for the class-A product of ABC analysis in the warehouse. As the Supplier ordering rate has a causal relationship with the available space in the warehouse, the variable Maximum warehouse capacity was varied in order to identify the optimum space required. The point where the Indicated orders follow the Supplier ordering rate is the optimum warehouse capacity. The effect of warehouse capacity on inventory is also studied. The results show that an optimum warehouse capacity required is about 825 products for class A (55% of total) and the analysis of the behaviour of Inventory indicates that there is a reduction in the Bullwhip effect and the system stabilizes at a faster rate as the Supplier ordering rate reaches closer to the Indicated orders.