RightChain Turns | Inventory Turn and Fill Rate Optimization

Inventory Policy Cost Computation

Total Policy Cost TPC = f(ufr) +

Lost Sales Cost LSC = f(ufr)

Inventory Carrying Cost ICC = f(ufr)

x

Annual Demand AD % Demand Unsatisfied (1-ufr) Unit Selling Price USP Shortage Factor SF

Average Inventory Value AIV

Inventory Carrying Rate ICR

x x x

x

Average Inventory Level AIL

Unit Inventory Value UIV

+

Half the Replenishment Quantity EOQ/2

Safety Stock SS

SS = f(e, ufr, L)

Annual Demand AD

Inventory Carrying Rate 1/ICR

Forecast Error e

Purchase Order Cost POC

Unit Inventory Value 1/UIV

Unit Fill Rate ufr

Leadtime L

EOQ = [(2*AD*POC)/(ICR*UIV)] 1/2