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.
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
- 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?