The best inventory planning processes rely on statistical analysis to uncover relevant facts about the data. For instance:
- The range of demand values and supplier lead times to expect.
- The most likely values of item demand and supplier lead time.
- The full probability distributions of item demand and supplier lead time.
If you reach the third level, you have the facts required to answer important operational questions, additional questions such as:
- Exactly how much extra stock is needed to improve service levels by 5%?
- What will happen to on-time-delivery if inventory is reduced by 5%?
- Will either of the above changes generate a positive financial return?
- More generally, what service level target and associated inventory level is most profitable?
When you have the facts and add your business knowledge, you can make more informed stocking decisions that will generate significant returns. You’ll also set proper expectations with internal and external stakeholders, ensuring there are fewer unwelcome surprises.