The problem of inventory deployment is deciding what to stock, where to stock it and in what quantities.
Inventory planners make two routine decisions – when to reorder and how much to reorder. Sure, other issues matter too – forecasts, obsolescence, physical storage and so on – but these are done on a “best efforts” basis. Inventory performance is driven by routine “when” and “how much” decisions made for every item in every location every day – even on the days when no orders are placed.
The “how much” decision is very frequently dependent on procurement economics – fill the container, order once a week or a package quantities’ worth. Planners have little latitude to alter procurement economics. The “when” decision is driven by Safety Stocks. They can be anything – even negative. Accordingly Safety Stocks are the most effective lever inventory planners have to impact inventory performance. Any inventory analysis that does not examine Safety Stocks is likely to fail.
Chicago Consulting has perfected the technology to specify optimal Safety Stocks – for every item at every location – multi-echelon. Our optimal Safety Stocks provide the highest possible Fill for any specific investment (Cost) or the lowest possible investment for any specified Fill.
Fast inexpensive items have very high Fill. They are the ones customers want and expect you to have. Stocking out of these will send your customers to your competitors, fast. In the other corner you should not invest much in expensive slow movers, perhaps nothing. Customers understand that you may not have these items all the time. A balanced (and optimal) strategy regarding Fill and investment (Cost) is applied to all the other items.
This approach has the advantage of automatically creating a class for every item at the same time eliminating the need to maintain the arbitrary A, B, C Class structure. Managing each item based on its own characteristics (velocity, variability, cost, lead-time, package quantity, minimums and so on) is the only way to optimize the whole inventory.
Call us at (312) 346-5080 and tell us how you optimize Inventory Deployment.