SAS Improving Inventory Optimisation for Product Promotions

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Inventory optimisation solutions are designed to help retailers determine the right product quantities to order to meet expected demand. These solutions calculate inventory policy parameters for the right ‘order level,’ ‘order up to level’ and ‘safety stock’ for a particular product at a particular location, which the retailer’s ERP/SCM system can then use to
order inventory.

The problem many inventory optimisation systems encounter is that they react to demand only within a predicted lead time. While these solutions do a good job of predicting normal demand levels, they come up short when the retailer runs a product promotion. Buyers typically treat promotions as exceptions in these optimisation systems and handle them manually. When product promotions cause extremely large fluctuations in demand, buyers tend to order too much product too late. The result is out-of-stocks at the beginning of the promotion and overstocks at the end.

To successfully address this lead time shortcoming, inventory optimisation solutions must be able to anticipate promotional demand ahead of normal lead time parameters so retailers can position the necessary quantities in the distribution channel. This paper reviews the demand requirements for promotions and describes how inventory optimisation should accommodate promotional demands to truly optimise the replenishment process.