Inventory Management
Another example is for inventory management. Inventory is a major cost for any manufacturer and resides in raw materials, WIP and finished goods so optimization through OR is important for cost control and maximal profits.
The use of OR optimization techniques for inventory is to calculates optimal inventory levels and replenishment policies based on required lead times, costs and target service levels. It identifies items that have reached reorder thresholds and generates recommended quantities for each item based on cost and service-level targets.
You can stock the right products in the right quantities, without creating excesses by rationalizing or the “bullwhip” effect. It helps produce and compare alternate planning scenarios for multiple items, thus helping select the optimal policy from a policy set.
Distribution personnel can proactively plan rather than react to unforeseen problems. Planners can customize key replenishment policy drivers to streamline replenishment for specific items.
Using scenario modeling capabilities, planners can compare planning scenarios to pick the optimal policy from a number of options. Figure 2 is high level depiction of a solution using OR capabilities to optimize any kind of inventory of finished goods.
I am sure the USA will sort out its mix of navy ships, Marine Corp bayonets and yes, even the horses in use in Afghanistan before the end of the year. In any case, we do owe the hard working military officers and scientists on both sides of the Atlantic some 60-70 years ago for the significant capabilities that OR has brought to our lives. It has helped lower costs and improve standards of living all across the globe whether it is this major Belgian pharmaceutical distributor reducing inventories yet increasing customer satisfaction, or this national auto parts chain optimizing inventory locations and prices Operations Research continues to grow in importance and use in all industries and governments at all levels.
Mike Newkirk is the Director of Manufacturing and Supply Chain Solutions at SAS.
