Total Cost Optimization
Inventory planning solutions often begin the optimization process using an arbitrary service level target as the goal. While these models prove valuable for just-in-time manufacturing planning, they do not provide a cost optimized solution for the just-in-case requirements associated with service supply chains.
Baxter’s total cost optimization solution models qualitative and quantitative cost elements to determine optimal target stock levels that yield optimized service levels. By including the cost of a “stock-out” in the calculation, the system achieves levels of optimization only possible with a solution designed for service parts planning.
Stock-out costs occur when the required part is not available at the ideal location. Stock-out costs are derived from factors that include customer importance, downtime costs, service contract penalties, expedited shipping fees, lost technician productivity, and lost profit, among other expenses. With Total Cost Optimization, the optimal target stock level is the one with the lowest total costs of combined inventory and stock-out costs.