Inventory optimization is all about maintaining the right amounts of inventory in the right places at the right time. Keep too much inventory and you'll have much higher stock holding costs, plus you'll lock up significant amounts of cash that could be used for better purposes. Keep too little inventory and you'll stock out and short customers. The tricky part is determining the amount that is just right.

Safety stock

A basic factor is a minimal safety stock to be kept. This safety stock is based on both demand uncertainty and supply uncertainty. Most demand planning applications provide safety stock calculations to cover demand uncertainty. These however do not include supply uncertainty. Conversely, some products exist that calculate a minimal stock based on supply uncertainty, but they in turn miss the demand side. Moreover, without both sides of the equation in one application it is impossible to determine where in the supply chain the inventory should be kept, and in which state of production. Wahupa SCM is different: all supply chain management aspects are combined in one product.

Product expiration

Another constraint to consider for some industries is product expiration or shelf life. If product is kept on inventory too long it expires and needs to be sold at a discount or even thrown away. This means inventory levels must not be too high, or if they need to be high, the right amount to be stored cool or frozen or pre-produced to a more conservable state needs to be determined.

Strategic inventory and harvests

Sometimes it makes sense to build up inventory because raw material costs are very low and the additional costs in production and inventory are compensated by strategically buying early. Sometimes you don't have a choice; for example if your raw materials are harvested product. In both cases the system will need to determine the optimal stock to keep to maximize profit (just looking at cost is not sufficient) and keep from stocking out.

We have not built inventory management building blocks yet, but we are looking for customers. Learn about the pros and cons of becoming an early adopter.