THE EFFECT OF A CHANGING MARKET MIX IN SEED CORN ON INVENTORY COSTS

Changing product characteristics are causing U.S. seed corn companies to reevaluate their inventory strategies. A simulation model based upon the Economic Order Quantity model is built in @Risk to reflect a shortened product life cycle and product proliferation. Inventory costs levels increase because of increased uncertainty of demand. Empirical results find that shortening the product life cycle and expanding the product line increases total inventory costs by 120.8%, increases the average inventory level (primarily due to added safety stock) by 56.2%, and increases the cost of carryover, stockout cost, and safety stock cost by 143, 165, and 119 %, respectively. To maintain higher levels of customer service with products displaying shorter life cycles, more safety stock must be held to guard against stockouts.