Inventory costs are the major costs in production costs, so in order to gain global competitive advantage and to obtain a stable position in the market for one’s product, one needs to reduce the inventory in the entire supply chain rather than optimizing at a single location. This study focuses on reducing the inventory in a three-stage model with two echelon supply chain considering two identical retailers with one distribution center and one manufacturer. The study considered continuous review time in the inventory replenishment policies and also took single product into consideration. Arena is one of the most sophisticated simulation software available. In this model, simulation is performed using arena simulation for optimizing the inventory. Moreover it identifies the reorder point and reorder quantity in order to optimize the inventory at both the echelons in the supply chain.

Nowadays, most of the firms are looking for competitive advantage to gain profits. To enable this, one needs to focus on the reduction of costs which can be achieved with the help of proper network flow of goods or services, information across the various stages of production and consumption, which is the supply chain. To optimize the cost, goods flow across the supply chain has to reduce the inventory costs associated with the respective stages of the supply chain network. Supply chain has assumed importance since the 1980s which laid the foundation for various researches.

Supply chain includes all the stages from the supplier of initial raw material to the final customer who receives the finished product. The products flow down the line, whereas the information flows upstream. Recently there are new technologies of information sharing techniques such as Vendor Managed Inventory (VMI) and Electronic Data Interchange (EDI). Inventory will be in place at each stage of the supply chain to meet the requirements such as: (1) Cover process time; (2) To establish a decoupling point; (3) To anticipate or speculate; and (4) To minimize control costs.

Supply Chain Management Journal, Positioning, Inventory, Electronic Data Interchange (EDI), Distribution Center (DC’s), Economic Order Quantity (EOQ), Mixed Integer Nonlinear Programming (MINLP), Supply Chain Using Simulation Modeling.