Inventory Policy

Purpose of Inventory Policy

Inventory policy is about setting safety stock and replenishment levels based on the organization's risk tolerance for stocking out. The system uses the lead time and demand variance to calculate optimal levels of stock.

Desired service level and stocking policy is set based on an items segmentation classification. For example, items with low variability should be made to stock and have a 95% service level.

The grid has a lot of useful quantitative information, like the expected demand during the lead time, the recommended reorder frequency in this case four days and the output from the inventory optimization, safety stock and reorder quantity.

The official safety stock becomes a minimum target, and the maximum target is calculated from the sum of the safety stock plus the reorder quantity. Users can override the calculated safety stock and reorder quantities to publish an official minimum and maximum target.

These official targets are then used in inventory analysis and SOP.

Arkieva Inventory Policy provides a recommendation for safety stock and reorder points based on the risk tolerance of the organization. Arkieva calculates the safety stock based on the lead time variance and the estimated demand variance from the forecast.

In a retail type of situation where replenish cycles are fixed (example daily, weekly, etc.) Arkieva provides a method based on Economic Order Quantity (EOQ) principles. This method calculates the replenishment quantity and re-order frequency based on demand.