Dynamic Reorder Point Inventory Control for Retail Stock
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Solution Overview
Problem
Retailers and suppliers face challenges in managing inventory levels to minimize out-of-stock incidents without overstocking, as current stock replenishment systems require individual management for each SKU across multiple stores, leading to inefficiencies and increased costs.
Innovation Solution
A method that sets an acceptable out-of-stock probability for each item, using point-of-sale data to determine a statistical distribution of sales, and calculates a reorder point based on maximal sales to ensure stock levels are maintained within defined probability limits, applying either a Compound Poisson or Negative Binomial distribution to optimize inventory management across multiple products and stores.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If inventory levels are kept very high at all times, then out-of-stock incidence rate is reduced, but storage space and cost of capital outlay increase
Solution Approach 1:
The patent changes the parameter of reorder point from fixed to dynamic, adjusting it based on lead time variability and demand variability. This allows the system to maintain higher reliability without proportionally increasing inventory levels, as the reorder point adapts to actual conditions rather than using static safety stock calculations
Solution Approach 2:
The patent introduces dynamic adjustment of reorder points based on real-time lead time and demand patterns. The system continuously monitors and updates reorder points, transforming the static inventory management approach into a dynamic one that responds to changing conditions, thereby reducing the need for excessive inventory while maintaining service levels
2Measurement precision
If individual stock replenishment systems are managed for each SKU across multiple stores, then inventory control precision is improved, but device complexity and management difficulty increase
Solution Approach 1:
The patent merges individual SKU-level replenishment systems into a unified family-level system. Instead of managing each product independently, the system aggregates demand and supply signals at the product family level, reducing the number of independent control systems needed while maintaining precise inventory control through the unified approach
Solution Approach 2:
The patent creates a universal replenishment system that handles multiple SKUs and product families through a single framework. The system performs multiple functions including demand forecasting, order optimization, and inventory allocation across different product families, eliminating the need for separate specialized systems for each SKU
Data Source
AI summary
The present invention provides a method of managing a stock replenishment system in a way that explicitly controls the in-stock rate. Also provided by the present invention is a method of managing a collection of stock replenishment systems in a way that the combined in-stock rate of the collection is controlled to a selected value. In addition, the present invention provides a method to set up a collection of stock replenishment systems in replenishment software systems in an identical fashion while controlling the combined in-stock rate. The methods of the present invention use point-of-sale data to determine packages-per-shopper rates, which are used as one of the inputs to statistical models of multiple-day retail sales.