Inventory Optimization
Optimum Profit Consulting provides Inventory Optimization as a consulting service. Optimum Profit Consulting’s Inventory Optimizer (IO) can perform single-echelon and multi-echelon inventory optimization. Optimal inventory targets and safety stocks are based on several factors:
IO will calculate the cycle stock, prebuild stock, in-transit stock and safety stock for every part/location combination in the inventory model. Multiple inventory simulations can be performed by changing the target service level by part class (e.g. change the A1 parts service target from 97% to 98%). After the inventory plan is developed the inventory targets can be entered into the company’s Enterprise Resource Planning (ERP) system to drive future manufacturing, transportation and purchase orders. The output from IO to be entered into the ERP system at the part/location level can include:
While many companies believe they have more inventory than they should the bigger problem is usually with the mix of inventory. As product demands change over time the inventory parameters need to also change. IO can be used to re-calculate the inventory parameters as often as desired to keep a company’s inventories aligned with constantly changing demand patterns.
IO Opportunity
The chart below shows how a customers inventory and service levels improve with inventory optimization. The green color shows the cycle stock needed to meet demand, the blue color shows the prebuild inventory due to minimum lot sizes and the and the gold color shows the optimal amount of safety stock needed to deliver the service levels shown on the horizontal axis. The red circles and line show the starting point and the future improvement goal. The dollar amounts on the vertical axis differ for each customer but the possibility for significant improvements in inventory dollars and service level apply to every company. Where would the red circle for your companies "History" be on this chart?
Optimum Profit Consulting provides Inventory Optimization as a consulting service. Optimum Profit Consulting’s Inventory Optimizer (IO) can perform single-echelon and multi-echelon inventory optimization. Optimal inventory targets and safety stocks are based on several factors:
- Part and location
- Demand history and/or forecasted demand
- Demand variability (volatility of demand)
- Demonstrated lead times
- Lead time variability
- Average purchasing or manufacturing lot size
- Prebuild requirements
- Gross margin per part
- Unit cost per part at every echelon
- Part classification
- Target service level by part class
- Inventory strategy by part class
IO will calculate the cycle stock, prebuild stock, in-transit stock and safety stock for every part/location combination in the inventory model. Multiple inventory simulations can be performed by changing the target service level by part class (e.g. change the A1 parts service target from 97% to 98%). After the inventory plan is developed the inventory targets can be entered into the company’s Enterprise Resource Planning (ERP) system to drive future manufacturing, transportation and purchase orders. The output from IO to be entered into the ERP system at the part/location level can include:
- Target inventory position
- Safety stock (fixed quantity or days of coverage)
- Reorder point and order up to quantity
While many companies believe they have more inventory than they should the bigger problem is usually with the mix of inventory. As product demands change over time the inventory parameters need to also change. IO can be used to re-calculate the inventory parameters as often as desired to keep a company’s inventories aligned with constantly changing demand patterns.
IO Opportunity
The chart below shows how a customers inventory and service levels improve with inventory optimization. The green color shows the cycle stock needed to meet demand, the blue color shows the prebuild inventory due to minimum lot sizes and the and the gold color shows the optimal amount of safety stock needed to deliver the service levels shown on the horizontal axis. The red circles and line show the starting point and the future improvement goal. The dollar amounts on the vertical axis differ for each customer but the possibility for significant improvements in inventory dollars and service level apply to every company. Where would the red circle for your companies "History" be on this chart?