Inventory Optimization
The focus of inventory optimization is to ensure that customers stock the right parts, in the right place, at the right time, in order to deliver high customer satisfaction and reduce operational and inventory costs. Planners that use inventory optimization find answers to these common questions:
• What fill rate can I achieve with a given inventory investment in an optimized solution?
• What would an optimal solution cost for my existing fill rate? How much would I save?
• What would be the cost to achieve fill rate of X percent for a group of SKUs?
• Given a budget constraint of X dollars, a group fill rate of Y percent and a minimum fill rate of Z percent fill rate at all locations within my distribution network, what is the best solution that can be achieved?
Inventory optimization extends the capabilities of the Stock Level Generation process by providing stocking recommendations to meet target service levels (and/or budget limitations) based on an extensive and holistic analysis of the replenishment and procurement network for each ASL SKU. Unlike the traditional inventory management theory, where most replenishment decisions focus on the field location level with nothing taken into account at any distribution center level, inventory optimization considers the network as a whole, where the stock level at upper echelons impact the resupply lead time for the downstream stocking locations. This methodology of optimizing the entire distribution network enables companies to maximize efficiencies in stocking along the distribution path in such a way as to benefit all subordinate locations without compromising their ability to meet demand. This often yields significant inventory cost savings (typically 25 to 40 percent) in addition to the savings achievable with SKU-based planning, proportional to the complexity of the distribution network.
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If a SKU is not on the Authorized Stocking List (ASL) then that SKU is not considered by inventory optimization. Only SKUs that are on the ASL or are not flagged as excluded SKUs are considered by inventory optimization for updates to the stock levels.
A SKU is excluded from the calculation when:
• It is not in the scenario segment coverage.
• The price is less than the value defined by the OPT_MIN_UNIT_COST global setting.
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Inventory optimization considers:
• Lead times for replenishment and procurement
• Backorder delays that impact the resupply lead time
• Desired inventory target objectives
• Stock overrides, minimums and/or maximums for a given part/location SKU or for all SKUs
• Minimum and/or maximum fill rate requirements for a given SKU or for all SKUs
• Minimum and/or maximum fill rate requirements for a subset of SKUs
• Maximum budget allowance for a subset of SKUs or for all SKUs being considered
• How far in the future to consider forecasts when planning.
Servigistics' inventory optimization can enable companies to overcome the operational inefficiency in inventory management by providing a true global network inventory optimization approach. This approach results in the best combination on both sides of the inventory equation, that being, high customer service level with less inventory investment.