Safety Stock Optimization Case Study

Description

Determine an optimized time-phased inventory plan across your multi-echelon supply chain. Include all your inventory classifications including raw materials, work-in-process, cycle stock, in-transit, finished goods, and safety stock in order meet your desired customer service levels with the lowest investment in inventory. You can also develop an inventory plan based on a top-down budgetary constraint that will maximize fill rates while respecting the limit on working capital investments.

Sample questions this use case addresses

How much, where, and in what form should inventory for a product be held in the supply chain?

How can I evaluate the impact of network strategy and variability on inventory?

How can I explore trade-offs between service level objectives and inventory holding costs?

Where should I set push vs. pull boundaries (also known as decoupling points) in my supply chain (that is, make-to-stock vs. make-to-order)?

What inventory should I hold in order to maximize fill rates under a top-down budgetary constraint for inventory investment?

Typical use case inputs

Statistical distributions

Transit time

Production time

Lead Time

History or future orders

Demand Forecast

Forecast accuracy

Starting inventory by location

Current stocking and service policies

Facility capabilities

Typical use case outputs

Optimal inventory profiles

Time-phased safety stocks by product and location

Policy guidance by location

Expected inventory levels by period

Demand profile by facility and customers

Simulation runs to show inventory levels over time

Inventory strategy value

Companies often generalize and apply a days-of-sales target across all products. This one-size-fits-all approach has the benefit of being simple to administer. However, it may result in significantly over investing in some stock and not enough in others. Getting the mix right is critical for providing the targeted level of customer service at the lowest cost.

There are numerous formulas for safety stock based on lead time, variability and service level target. These approaches fail to consider the interdependencies across nodes in the supply chain. The closer to the final customer, typically the more intermittent and variable the demand signals become. As we look into the upstream supply chain, pooling demand signals results in smoother demand that is easier to forecast. The trade-off between inventory form and function is optimized and the right policy to stock each node is determined. This solution must include a holistic consideration of in-transit, cycle stock, WIP, quality holds, and safety stock.

Customization

Customization Level Required: Low

Details of Customization

DDM

Low level of customization required if any.

Model Building

Low level of customization required. Use the Safety Stock Optimization AMB template as a starting point. Incorporate additional variability to account for data such as transit time or production time statistical distributions. If required, incorporate starting inventory levels.