Inventory Optimizer™ provides the safety stock (or minimum inventory level) and fill rate for every item in your inventory. Each item “earns” its inventory level based on item profitability, demand-predictability, leadtime, holding cost, and purchase or production cost. The Inventory Optimizer™ can be run based on a pre-determined inventory budget or it can determine the optimal inventory budget based on demand and inventory holding cost. If you have a pre-determined budget, this is allocated across all items, setting safety stock levels to maximize profit via overall fulfilled demand. If you want the Inventory Optimizer™ to determine the optimal budget, it will do this while simultaneously determining each item’s optimal safety stock and fill rate.
Safety stocks should then be reviewed by your sales and operations staff, and uploaded into your ERP system to ensure inventory of each item is maintained at its optimal level. Setting inventory levels lower would reduce profit due to lost sales or backorders. Setting the inventory levels higher would reduce profit because additional profit earned would not cover the holding cost due to diminishing return on investment. Our process finds the optimal inventory level where you are maximizing profit.