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Finish the model : structure , policy , and business logic Once you ’ ve established your physical supply chain structure , you can incorporate inventory policies and contingency rules . What are your current inventory policies and targets ? What are your replenishment and sourcing policies ?
Additionally , you ’ ll want to capture and include expediting and compensatory inventory management practices that your operators use : What happens when a stock out occurs ? How are stockouts prioritized ? How do I ration inventory when stocks get low ? How and when do I expedite resupply ?
These kinds of policies are happening in your network whether you know it or not . For future state models to operate properly - model validity - the model has to include the logic about what happens under ‘ less than optimal ’ conditions .
Does your inventory have unique characteristics that you must consider , like the need for cold storage , shelf space requirements , or pharmaceutical regulations and expiration dates ? Specific product types require unique storage characteristics that you must account for .
Inventory right-sizing : base case Simulate the base case and evaluate the outputs . Are there obvious overstocking situations ? Insurance is important , but too much insurance truly IS a waste ! Right size the current inventory policies and you may find some low-hanging fruit .
Asking yourself why that fruit is there in the first place can be a valuable project on its own . We ’ ve seen a surprising number of cases where an objective evaluation of the base case of inventory policies has revealed wrong parameters , old inventory approaches , and even some cases where the inventory management system was installed with basic ‘ factory settings ’ that were never changed . That ’ s an embarrassment that ’ s completely avoidable .
Optimizing inventory strategy with multi-echelon inventory optimization You ’ ve optimized your base case . Now look to the future . What ideas have the categories managers talked about trying but haven ’ t been able to for fear of messing things up ? What are the bigger changes that the CFO ’ s office is suggesting but you ’ ve dismissed for fear of service degradation ?
The planners and managers that run the network have many , many ideas about how to make things better . If only they could stop the plane in mid-air and try things in a safe environment . Take their ideas , apply multi-echelon inventory optimization , or simulation-optimization , to flesh out what a new approach would look like .
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