The Cost-Weighted Back-Order Method

Red Cube analysis and ongoing outputs enable Inventory Planners and Managers to move from a reliance on old-fashioned demand satisfaction to the Cost-Weighted Back-Order approach.

The flaw with demand satisfaction methods is that the impact of shortage when a demand is not satisfied (known as Dues-out or Back-Orders) is not properly addressed.  Minimising Back-Orders by reference to their actual cost-risk provides a truly optimum result.

Based on a 3-dimenisional and 4-dimensional analysis from Red Cube inventory planners are able to focus procurement and replenishment on the items that are most likely to impact operational availability if a back order were to occur. As a result back orders are minimised whilst operational performance is improved. In other words, an optimum inventory mix is both achieved and maintained.

The IO Cost-Weighted Back-Order® algorithms have proved so effective at delivering improved inventory performance that Inventory Optimisation Ltd are able to contractually guarantee results.

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