Item Optimization
Stock item "Bearing 23456" has a current storage strategy as
follows: Reorder point = 3, Order size = 10. The item has only
unplanned consumption and the amount of storage visits is in average 3
visits per year with a standard deviation of 1.5. An expert also has
information that maximum amount of stock visits per year is 6. When an
unplanned stock visit occurs the need is usually for a pair of bearings,
but sometimes only one bearing is enough. This leads to the following
consumption probabilities: Consumption 2  Probability 0.8, Consumption
1  Probability 0.2.
Item delivery time is in average 9 days with a standard deviation of 3
days. The internal order time of the storage (time that it takes to
provide the order to the supplier) is 0.4 days with a standard deviation
of 0.5 days. By combining the order and delivery times we can calculate
that 95% of order occasions provide item to the storage in under 15.9 days
from the need. There is also a possibility to order the item in emergency
cases from another storage of the same supplier in which case the
delivery time is 12 hours with a standard deviation of 12 hours.
What is the most costefficient way to store the item when the cost
data is as follows:
 Item price = 120 EUR
 Order costs = 20 EUR / order
 Delivery costs = 20 EUR / delivery
 Emergency delivery with taxi = 200 EUR / delivery
 Shortage penalty = 10000 EUR / h
 Annual interest of funds = 12%
 Space and upkeep costs = 20 EUR / item / year
StockOptim software can be used to solve the problem by first inputting
the basic data for the item created to the software and then optimizing the
item. StockOptim optimization tool suggests the costoptimal storage strategy
to be Reorder point = 5, Order size = 4.
As a result StockOptim provides a report that allows the comparison
between the current storage strategy and the optimized one. It is also
possible to add other storage strategy results to the report. In this
example the goal was to locate the most costefficient storage
strategy and the results concerning it and the current strategy can be found in
the table below.
Cost (EUR) 
Current storage strategy Reorder point = 3 Order size = 10 
Optimized storage strategy Reorder point = 5 Order size = 4 
Ordering (a) 
10.80 
26.82 
Ordering (s.d.) 
10.16 
15.95 
Ordering (95%) 
20.00 
60.00 
Cargo (a) 
10.94 
26.82 
Cargo (s.d.) 
11.52 
15.95 
Cargo (95%) 
20.00 
60.00 
Space and upkeep (a) 
167.93 
147.51 
Space and upkeep (s.d.) 
35.97 
14.09 
Space and upkeep (95%) 
228.70 
172.10 
Interest (a) 
120.45 
105.81 
Interest (s.d.) 
25.80 
10.11 
Interest (95%) 
164.05 
123.45 
Shortages (a) 
122.60 
0.00 
Shortages (s.d.) 
5841.90 
0.00 
Shortages (95%) 
0.00 
0.00 
Sum (a) 
432.72 
306.95 
Sum (s.d.) 
5842.80 
31.74 
Sum (95%) 
416.82 
359.04 
(a = average value, s.d. = standard deviation and 95% = 95% quantile)
In addition to normal storagerelated cost results also other performance
indicators are available:

Current storage strategy Reorder point = 3 Order size = 10 
Optimized storage strategy Reorder point = 5 Order size = 4 
Probability for no shortage situations in a year 
0.99918 
1.00000 
Items in storage in average [pcs] 
8.36 
7.35 
Number of supplies (a) 
0.54 
1.34 
Turnover (a) 
0.68 
0.74 
(a = average value, s.d. = standard deviation ja 95% = 95% quantile)
