How Good are Your Reordering Criteria?

You can find out how good your reordering criteria (minimum and maximum levels) are by comparing their effects with those of near optimal criteria.

There is open source software which can be used for this purpose. Instructions for downloading, installing and using it are contained in the?Users’ Guide. The software is available for beta testing.?It uses data in your inventory system to produce a “Performance” report which compares the two sets of reordering criteria. It shows the expected overall service service levels and average total cycle stock values. In order to find the amount of scope for improvement, the parameters used for the optimal criteria should be adjusted to make the expected overall service level the same for each of the two sets of reordering criteria. The difference between the expected average total cycle stock values then serves as a good indication of the value of possible improvements. The same calculations are used for finding the effects of both sets of reordering criteria. As a result, the indicated scope for improvement of your current system is reasonably reliable.

You will probably be surprised at the amount of scope for improvement. That is because there is a large amount of scope for improvement in the reordering criteria produced by most inventory systems. This is particularly the case if your inventory system does not require input of shortage cost parameters.

If you don’t want to install the software at present, you can ask the developer (Don Johnston) to produce the “Performance” report for you. This service is offered free of charge at least until the end of October 2023. If you would like to use this free service, please?contact Don?as soon as possible.