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Stocking and Ordering Planner (SOP)

SOP is a two-echelon inventory planning tool that uses standard inventory models to help with safety stocks and replenishment decisions. It can be used for up to two echelons in a supply chain – for instance, these could be depot-distributor levels in a FMCG or Retail chain or factory-warehouse levels in a manufacturing firm.

Outputs/Decision variables

SOP considers two echelons and simultaneously decides:

  • SKU/product classification based on value, demand volume and variance
  • SKU-wise safety stocks
  • SKU-wise replenishment norms (when to order, how much to order) based on periodic or continuous replenishment system

Objectives

  • Meet desired service level for a class of SKUs/products, expressed as average fill rate, range of availability, etc.
  • Minimize inventory stocking cost
  • Meet real world constraints like storage space, fund/credit limit, minimum order quantity, transport economy, etc.


Questions SOP can help answer

  • What is the best SKU/product classification for inventory planning, given the price, consumption volume, variance and other strategic information?
  • For each class of SKU/product, what is the optimum level of safety stock that meets the desired service level?
  • For each class of SKU/product, what is the optimum reorder point and order quantity that meets the desired service level at low inventory cost?
  • How does the average consumption rate affect optimum safety stock and ordering norm?
  • How does the demand variation affect optimum safety stock and ordering norm??
  • How does the transport and replenishment lead time affect optimum safety stock and ordering norm?
  • How can a new SKU/product be accommodated in existing inventory replenishment system?
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