Simulation and analysis of dealers' returns distribution strategy

Due to high demand uncertainty, excess inventory has been a key issue in inventory control. Caterpillar developed the dealers' parts inventory sharing (DPIS) and returns programs to help dealers cope with excess inventory. However, historical data show that the current returns policy has been very costly to Caterpillar due to the distribution strategy. In this project, we develop alternative returns policies and propose to use simulation to analyze the cost structure of the alternative policies, develop cost sharing schemes, and compare performance with the current policy under different scenarios. It is shown that the simulation tool we developed provides industry managers with a test ground for new returns strategies and the output analysis presents guidelines to set parameters when using the new strategies to manage returns distribution.