# Market-Oriented Procurement Planning Leading to a Higher Service Level and Cost Optimization
## 3 Design of the Conceptual and Simulation Models
### Key Performance Indicators for an Inventory Management Model  
A major reason for organizations to undertake activities is to save money or increase profit, or influence other important factors, such as quality, delivery time, or delivery reliability, which are essential for competitiveness [1]. The results will be quantitative to evaluate the response according to the following key performance indicators (KPIs) divided into the defining parameters of a specific scenario and the system efficiency indicators, including the economic parameters as shown in Table 7. The detailed explanations and formulae of the KPIs are described in Appendix B. The values of the KPIs refer to the sum of all stages of the supply chain, such as the average work in process (WIP) stock except for specific KPIs, such as the average procurement quantity, average stock at Tier 1 producer or original equipment manufacturer (OEM), and the end-customer KPIs, such as the service level:  
\begin{table}
\begin{tabular}{c c c} \hline \hline
**No.** & **Replenishment Method** & **Procurement Order Quantity** \\ \hline
1 & Reorder point & \(Q_{RP}=2\times BS+SS+Customer\) backlogs \\  & & \(-Virtual\) inventory \\ \hline
2 & EOQ (backordering) & \(q=Q_{EOQ\_Backordering}=Q_{E}\times Q_{B}\) \\  & & \(=\sqrt{\frac{2\times AQ}{\times C}}\times\sqrt{\frac{l_{BC}+\pi}{n}}\) \\ \hline \hline \end{tabular}
\end{table}
Table 6: Procurement order quantity (own elaboration).  
\begin{table}
\begin{tabular}{c c c} \hline \hline
**No.** & **Key Indicator** & **Formula** \\ \hline
1 & \(\sum\) Demand (products) & \(\sum\limits_{t=1}^{n}\)_Demand at time period_\(t\) \\ \hline
2 & MAD of the forecast (products) & \(\frac{\sum_{t=1}^{n}|D\ (t)-F\ (t)|}{\sum_{t=1}^{n}t}\) \\ \hline
3 & \(\mathcal{O}\) WIP stock (products) & \(\frac{\sum_{t=1}^{n}|Stack\) at the warehouse at time \(t\)}{\sum_{t=1}^{n}t}\) \\ \hline
4 & \(\mathcal{O}\) stock at Tier 1 producer & \(\frac{\sum_{t=1}^{n}Stack\) at the Tier \(t-1\) warehouses at time \(t\)}{\sum_{t=1}^{n}t}\) \\  & (products) & \(\frac{\sum_{t=1}^{n}Stack\) at the OEM producer warehouses at time \(t\)} \\ \hline
5 & \(\mathcal{O}\) stock at OEM producer & \(\frac{\sum_{t=1}^{n}Stack\) at the OEM producer warehouses at time \(t\)} \\  & (products) & \(\frac{\sum_{t=1}^{n}t}{\sum_{t=1}^{n}t}\) \\ \hline
6 & Utilization rate of employees (\%) & \(\frac{\sum_{t=1}^{n}Capacity\) used \(\sum_{t=1}^{n}\) (Capacity per employee-No. of employees) \(\times 100\%\) \\ \hline
7 & On-time delivery (\%) & \(\frac{\sum_{t=1}^{n}P_{t}}{\sum_{t=1}^{n}P_{t}}\) \\ \hline
8 & Service level (\%) & \(\frac{\sum_{t=1}^{n}Weeks\ without\ product\ backlogs}{\times 100\%}\) \\ \hline
9 & \(\mathcal{O}\) Procurement quantity & \(\frac{\sum_{t=1}^{n}P_{t}}{\sum_{t=1}^{n}P_{t}}\) \\  & (products) & \(\frac{\sum_{t=1}^{n}P_{t}}{\sum_{t=1}^{n}P_{t}}\) \\ \hline
10 & \(\mathcal{O}\) Customer backlog (products) & \(\frac{\sum_{t=1}^{n}Customer\ backlogs (products)}{\sum_{t=1}^{n}t}\). \\ \hline
11 & \(\sum\) Weeks with customer backlog (weeks) & \(\sum\limits_{t=1}^{n}\) Customer backlog (weeks). \\ \hline \hline \end{tabular}
\end{table}
Table 7: KPIs for an inventory management model (own elaboration based on [42,43] and [51]).