Inventory optimization techniques, system vs. item level inventory analysis

Inventory optimization attempts to find the best distribution of inventory that meets specified cost and availability goals. An abundance of commercial off the shelf spares models have recently implemented spares optimization techniques to determine least cost spares solutions. This paper examines two different spares analysis methods and optimization approaches to determine the best method to predict initial stock requirements and quantify the risk and/or benefits in using spares optimization techniques. Spares Analysis methods discussed in this paper include the traditional item level availability method and system level availability method. Spares optimization methods include applying marginal analysis and a technique known as genetic algorithms to perform optimization using the system level availability method. It is concluded that while inventory optimization methods may find low cost inventory distributions, it is important to quantify the risk of selecting these distributions if there is a reasonable amount of uncertainty in the inventory model input parameters.