Gartner Research

Supply Chain Leaders Must Consider Opportunity Costs and Risk of Loss to Optimize Inventory

Published: 22 March 2018

ID: G00351403

Analyst(s): Paul Lord

Summary

Inventory can be used to mitigate constraints, risks and variability to protect and create business value. This research provides analysis and insights on three elements of opportunity cost that supply chain leaders responsible for inventory must define and quantify to maximize total value.

Table Of Contents
  • Key Challenges

Introduction

Analysis

  • Balance Supply Economics With Working Capital Cost to Optimize Production Quantity Decisions
    • What Is Cycle Stock and What Function Does It Fulfill?
    • How Is Cycle Stock Optimized?
    • How Does the EOQ Algorithm Apply to Production Decisions?
  • Balance Margin Risk With Working Capital Costs to Optimize Buffer Stocks
    • What Are Buffer and Safety Stock and What Do They Do?
    • What Algorithm Determines the Safety Stock?
    • Are You Calculating or Optimizing Your Safety Stock?
    • What Is the Monetized Value Loss Experienced From a Service Failure?
  • Balance Event-Related Profit Opportunity With Risk of Inventory Loss to Determine Anticipation Stock That Optimizes Expected Value

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