Moreover, it serves an opportunity to practice the tools taught in operations research and production planning courses.
Inventory optimization models can be either deterministic—with every set of variable states uniquely determined by the parameters in the model – or stochastic—with variable states described by probability distributions.
Stochastic optimization takes supply uncertainty into account that, for example, 6 percent of orders from an overseas supplier are 1–3 days late, 1 percent are 4–6 days late, 5 percent are 7–14 days late and 8 percent are more than 14 days late.
So the median company spends over 1 percent of revenues carrying inventory, although for some companies the number is much higher.
Also, the amount of inventory held has a major impact on available cash.
At the same time, planning frequencies and time-buckets are moving from monthly/weekly to daily and the number of managed stocking locations from dozens in distribution centers to hundreds or thousands at the points of sale (POS).
This leads to a large number of time series with a high level of demand volatility.Smiths Medical, a division of Smiths Group, used inventory optimization to better address demand volatility and supply variability, thus reducing the risk of both understocks and overstocks while smoothing out manufacturing cycles.IE 402 Supply Chain Management (3 0 3) (ECTS: 5) This course gives an understanding of the basic concepts, techniques and algorithms for planning and coordinating the supply chain systems.APQC Open Standards data shows that the median company carries an inventory of 10.6 percent of annual revenues.The typical cost of carrying inventory is at least 10.0 percent of the inventory value.For example, management predicts a 65 percent probability of selling 500 units, a 20 percent probability of selling 400 units and a 15 percent probability of selling 600 units.