Reaching optimal levels of inventory by using the ABC inventory method classification and setting service levels

Lienesch, a company that sells window decoration fabrics to other businesses, sees demand growing faster than their inventory capacity can manage. Due to that, the allocation of warehouse space for their various products is something that needs reconsideration. In this study, an ABC-XYZ classification is applied to determine optimal service levels per SKU. Subsequently, corresponding target inventory levels will be found, which we then tune according to the given space in the warehouse. The joint application of inventory classification, inventory level setting and capacity considerations is what makes this approach a novel one. Key findings are that the R should be higher than it currently is, though current inventory levels should be reduced. This new method leads to a space/cost reduction, because it provides Lienesch with a clear path as to how to manage their inventory. A way of dealing with overcapacity is introduced, giving Lienesch and possibly other organisations the possibility to determine which products’ inventory levels should be brought down first.