Adding Inventory Policies (Simulation)

Inventory policies describe how inventory is managed across facilities in our supply chain. These policies can include how and when to replenish, how stock is picked out of inventory, and many other important rules.

In general, we add inventory policies using the Inventory Policies table in Cosmic Frog.

In this documentation we will cover the types of inventory simulation policies available and also other settings contained in the Inventory Policies table.

Inventory Simulation Policies

(R,Q) inventory policies

An (R,Q) policy is a commonly used inventory management approach. Here, when inventory drops below a value of R units, the policy is to order Q units. In Cosmic Frog, when an (R,Q) policy is selected, we can define R and Q in “SimulationPolicyValue1” and “SimulationPolicyValue2”, respectively. We can define the unit of measure (e.g. pallets, volume, individual units, etc.) for both parameters in their corresponding simulation policy value UOM column.

In the following example, MFG_STL has an (R,Q) inventory policy of (100,1900) for Product_2, measured in terms of individual units (i.e. “each”).

(s,S) inventory policies

(s,S) policies are like (R,Q) policies in that they define when to reorder and how much to reorder. In an(s,S) policy, when inventory is below s units, the policy is to “order up to” S units. In other words, if x is the current inventory level, and x < s, the policy is to order (S-x) units of inventory.

In the example below, DC_VA has an (s,S) inventory policy of (150,750) for Product_1. If inventory dips below 150, the policy is to order so that inventory would replenish to 750 units.

(T,S) inventory policies

A (T,S) inventory policy is like an (s,S) inventory policy in that whenever inventory is replenished, it is replenished up to level S. Under an (s,S) inventory policy, we check the inventory level in each period when making reorder decisions. In contrast, under a (T,S) inventory policy, the current inventory level is only checked every T periods. During one of these checks, if the inventory level is below S, then inventory is replenished up to level S.

In the example below, DC_VA manages Product_1 using a (T,S) inventory policy. The DC checks the inventory level every 5 days. If inventory is below 750 units during any of these checks, inventory is replenished up to 750 units.

(Min,Max) Inventory Policies

A (Min,Max) inventory policy is a simpler inventory policy where the goal is to keep the inventory within a certain range. The Min value represent the minimum inventory level that needs to be maintained: when inventory falls below the Min level, a replenishment order is triggered to bring the inventory back up to this level. The Max value represents the maximum inventory level: if the inventory level is above this Max level, no additional replenishment orders will be made until the inventory level falls below the minimum threshold.

In the example below, DC_AZ manages Product_1 using a (Min,Max) inventory policy. When the inventory falls below 600, a replenishment order to bring the level back up to 600 is created. When the inventory goes over 900, no inventory replenishment orders are placed until the inventory level falls below 600.

Do Nothing Inventory Policies

As the name suggests a Do Nothing inventory policy does not trigger any replenishment orders. This policy can for example be used for products that are being phased out or at manufacturing locations where production occurs based on a schedule.

In the example below, MFG_STL uses the Do Nothing inventory policy for the 3 products it manufactures.

Other Fields on the Inventory Policies Table

On the inventory policies table, other fields available to the user to model inventory include those to set initial inventory, how often inventory is reviewed, and the inventory carrying cost percentage:

1. Initial Inventory and its UOM field – indicate how much product is on hand at the facility at the time the simulation starts. Not setting initial inventory will lead to a bunch of replenishment orders being triggered all at the same time at the simulation start.
2. Review Period First Time, and Review Period and its UOM field – these together set when and at what interval inventory is reviewed to determine if and if so how much inventory needs to be re-ordered. Review Period First Time specifies when on the simulation clock, the first inventory review occurs; if left blank the first review is at the start of the simulation. From the first review onward, the review period indicates the interval after which the next review will be. If Review Period is left blank, it means that inventory is monitored continuously.
3. Carrying Cost Percentage – if inventory carrying costs are calculated, the calculation is as follows: time the unit(s) are in stock (days) * product value (set on Products table) * carrying cost percentage / 365 (days in a year). If no carrying cost percentage is set on the Inventory Policies table, the value set in the Model Settings table will be used. Enter 10 for a carrying cost percentage of 10%.
4. The settings for Product_3 at DC_IL are as follows: there is an initial inventory of 300 units, the first review occurs at 10AM on January 6th, 2025 (a Monday), and reviews occur every 7 days. So every Monday at 10AM inventory of product_3 at DC_IL is checked and re-ordered if needed according to the inventory policy logic and values. The carrying cost percentage is set to 12%.

Surplus Level Settings

When Only Source From Surplus is set to True on a customer fulfillment or a replenishment policy, the Surplus fields on the Inventory Policies table can be used to specify what is considered surplus inventory for a facility – product combination:

1. Surplus Level and its UOM field – here user can set the inventory level above which inventory is considered to be surplus. This can be set using units of measure of quantity, weight, and volume (e.g. EA for eaches, LB for pounds, and CFT for cubic foot), but also Days Of Supply (using the DOS symbol for this unit of measure).
2. Surplus Review Period First Time, and Surplus Review Period and its UOM field – these only need to be set in the case of using Push replenishment policies to specify when inventory will be checked to see if there is any surplus. They work similar to the Review Period fields (explained in the previous section): Surplus Review Period First Time specifies when the inventory is first checked for surplus, if left blank this occurs at the simulation start. Surplus Review Period and its UOM field set the interval between each surplus review. For all customer fulfillment policies with Only Source From Surplus = True and Pull replenishment policies with Only Source From Surplus = True, inventory will be checked for surplus at the time the customer/replenishment order occurs and its source is being determined.
3. For Product_3 at DC_IL the Surplus Level is set to 600 units. If for example the inventory on hand = 750 at a given time, it means there are 150 units of surplus available. If at that time a customer fulfillment order with Only Source From Surplus set to True of 200 units for Product_3 comes in, DC_IL can fulfill 150 of those units.

Note that if all inventory needs to be pushed out of a location, Push replenishment policies need to be set up for that location (where the location is the Source), and Surplus Level needs to be set to 0.

Days of Supply (DOS) Settings and Calculations

Inventory Policy Value fields can also be expressed in terms of the number of days of supply to enable the modelling of inventory where the levels go up or down when (forecasted) demand goes up or down. Please see the help center article “Inventory – Days of Supply (Simulation)” to learn more about how this can be set up and the underlying calculations.