Determining the inventory policy
Safety Stock Optimization provides a recommended inventory policy. Replenishment data, such as when to order inventory and how much to order in order to meet the service requirement, is generated. The process that Safety Stock Optimization follows is:
- Define the demand series
- Estimate the lead time demand distribution parameters
- Identify a lead time demand distribution
- Recommend an inventory policy
- Set the optimal reorder point
When running Demand Analysis, if you select the "Include site propagation" run option, inventory policies are required for those sites. Inventory policies are not mandatory for Demand Analysis of customers only.
Recommended inventory policies
Safety Stock Optimization uses the demand class to arrive at the recommended inventory policy as shown in the following table.
| Demand Class Details | Lead-Time Demand Distribution | Policy |
|---|---|---|
| ExtremelySlow | Make-to-Order | |
| Smooth | Normal | R,Q |
| Erratic | Gamma | s,S |
| Slow-LowVariable (batch size = 1) | Gamma | BaseStock |
| Slow-LowVariable (batch size > 1) | Gamma | R,Q |
| Slow-HighlyVariable | Gamma | s,S |
| Lumpy (batch size = 1) | Negative Binomial/Gamma | T,S |
| Lumpy (batch size > 1) | Negative Binomial/Gamma | R,Q |
| ExtremelySmall | N/A | |
| ExtremelyVariable | Depends on the original class |
Safety Stock Optimization recommends lead time demand distribution based on demand class and lead time demand parameters
If the Review Period is "Continuous", (T,S) Policy is the same as BaseStock.
If the Review Period in the Inventory Policies table is not "Continuous", the Recommended Inventory Policy will be (T,S) regardless of the demand classification.
If the Review Period in the Inventory Policies table is not "Continuous", the Recommended Inventory Policy will be (T,S) regardless of the demand classification.
Last modified: Wednesday May 15, 2024