Description

The calculator is dedicated to carry out the optimal threshold inventory management strategy (reorder point/reorder quantity, ROP/ROQ) for one product. In order to start the process of calculation, one should fill in the initial data fields and click the Calculate button.

Browser requirements

The service for calculating the optimal purchase works on any Internet browser

Description of the initial data for calculation

Optimizer type
  • Optimization method – «Threshold» optimizer is chosen by default. In the future the list of options will be extended: the optimizers for perishables (“FRESH”), revolving and interval solutions will be available.
Financial parameters of a product
  • Purchase price ( /piece)
    The product prime cost per unit. At the first approximation it equals to the purchase price.
  • Sale price ( /piece)
    Average sale price for customer.
  • Replenishment cost(/item)
    Replenishment cost equals to the ordering cost plus taking delivery cost. Also, replenishment cost can include a warehouse order picking cost, shipment registration expenses and the other costs, which depend only from the number of products ordered, and does not depend from the shipment volume. This parameter is also used in formula of R. H. Wilson for EOQ (economic order quantity).
  • Annual discount rate (%)
    Discount rate is the inner cost of money or bank loan interest.
  • Supplier’s grace period before a payment (days)
    Maximum value cannot exceed 365 days. The default value is 30 days.
  • Delay of payment for customer (days)
    Maximum value cannot exceed 365 days. The default value is 0 days.
Parameters of demand
  • Daily quantity demanded (pcs/day)
    Average forecast daily unit sales for the product.
  • Demand (cheque quantity) probability distribution
    It shows all possible variants of customer demand along with the corresponding probabilities. For example: the probability of 1 pc in a transaction is 85%, probability of 2 pcs in a transaction is 3%, 3 pcs in a transaction – 2%.
Logistics parameters
  • Lead time (days)
    Lead time – the interval from placing an order up to putting a product on sale.
Buttons and check boxes
  • «Calculate» button
    This button starts Optimizer for calculation of optimum reorder point and reorder quantity, also for calculation of KPI to be planned.
  • «Plot» button
    The button works only after the optimal ROP and ROQ having been calculated. On clicking the Plot button, the stock quantity curve (logistic curve) for 5 order cycle period should appear.
  • «Surface plot» button
    The button starts work only after optimized reorder point and optimized reorder quantity have been calculated. After clicking the Surface plot button, the screen form should appear, which shows the 3D-surface plot of function for the total cost calculation (or for the profit calculation), depending from two variables: ROP and ROQ. Before the surface is built, there is a possibility to correct the tabulation step of ROP and ROQ and the tabulation step of total cost (along the corresponding coordinate axis). There is the optimum point marked on the surface: total cost minimum (in other words, maximum of profit).
  • «Compare with the alternative parameters» check-box
    The Calculator allows (besides finding an optimal ROP/ROQ combination) to calculate the KPI for any alternative combination of reorder point and reorder quantity and compare them with optimal indicators. To calculate the alternative, tick the checkbox Compare with alternative parameters and specify Threshold (ROP) and Order value (ROQ). The comparison of calculations is displayed in the table Payroll result. Worsening indicators are highlighted in red and the improving ones are highlighted in orange in the column of Alternative indicators.
Table «Payroll result» description

The column Optimum of the table Payroll result shows the optimal pair ROP-ROQ, which provides the optimal KPI at the given input parameters of calculation. The column Alternative show KPI of the alternative solution. The following parameters are given in lines of the table:

  • Reorder point (ROP) – the level of inventory (pcs), which triggers an order placement.
  • Reorder quantity (ROQ) – ordered quantity (pcs) of the stock item at the reorder point.
  • Interval (days) – time between orders.
  • Service level (%) – service level (percentage of satisfied demand).
  • Inventory (days) – planned average inventory in terms of days for the item.
  • Total daily costs (/day) – the total amount of stock-out, storage and replenishment costs.
  • Stock-out costs (/day) – foregone income.
  • Storage costs (/day) – costs for holding the item in stock.
  • Replenishment cost (/day) – cost of ordering plus taking delivery.
  • Profit (/day) - the maximum possible income at 100% satisfied demand minus total costs.
  • Stock-out quantity (psc/ day) – planned amount of item in unmet demand.
  • <Stock quantity> – the average stock quantity forecasted.
  • <Inventory value> () – the average planned inventory value (in purchase price).
  • Maximum (pcs) – quantity of the product in stock at the day of delivery.