We applied advanced analytics to derive profit maximizing replenishment rules and inventory targets for a global manufacturing company’s overseas supply chain.
The global manufacturing company was struggling to balance the working capital tied in inventories against the cost of lost sales due to availability issues in one of its most important overseas markets. Sales had recently faced availability challenges in key product categories, even as the overall inventory levels had peaked.
We worked closely with our client to combine their data and extensive market experience with our problem solving and advanced analytics capabilities. We leveraged stochastic models and statistical methods to build a data-driven model for simulating the uncertainty in both demand and supply at the product and warehouse levels. The simulation model allowed us to estimate the expected inventory levels and lost sales under different replenishment rules for each product and warehouse, and pick the rules that struck the optimal balance between the cost of lost sales and the marginal cost of capital tied in inventories.
The simulation results clearly showed that the target for the supply chain should be high availability with low lost sales. With the new replenishment rules, inventories were adjusted towards the profit maximizing level and product mix for each warehouse.