RightChain Turns | Inventory Turn and Fill Rate Optimization

Inventory Policy Cost ™ (IPC) = Inventory Carrying Cost (ICC) + Lost Sales Cost (LSC)

• Inventory Carrying Cost = Average Inventory Value (AIV) x Inventory Carrying Rate (ICR) • Average Inventory Value (AIV) = Average Inventory Level (AIL) x Unit Inventory Value (UIV) • Average Inventory Level (AIL) = Safety Stock + Order Quantity/2 + In-Transit Inventory • Safety Stock = f (forecast error, leadtime variablity) • Order Quantity = {[2 x FAD x POC]/[UIV x ICR]} 1/2 • In-Transit Inventory = Lead Time in Days (L) x Daily Demand

• Lost Sales Cost (LSC) = Forecast Annual Demand (FAD) x Unit Selling Price (USP) x

(1 – Unit Fill Rate) x Shortage Factor (SF) • Gross Margin Return on Inventory (GMROI) = FAD x UFR x {[USP – UIV]}/AIV