Build twins!

Inventory Twin

How much inventory do we really need — and where?

1 Core Question

How much inventory is needed to protect service without tying up unnecessary capital?

2 The Business Problem

Too much inventory is expensive. Too little inventory is risky.

Higher stock levels may protect availability, but increase working capital, storage costs and obsolescence risk.

Lower stock levels release capital, but may increase shortages, lost sales or operational disruption.

The relationship is rarely linear — and simple rules such as fixed weeks of supply or a single safety-stock formula can hide substantial differences between products.

3 What the Twin Does

An Inventory Twin combines historical demand, replenishment behaviour, lead times, current inventory rules and service requirements.

Instead of evaluating only the current policy, alternative inventory strategies can be simulated under different future demand and supply conditions.

4 Demonstrated Capabilities

Inventory policy benchmarking

Compare alternative reorder points, order quantities and safety-stock policies against the current approach.

Demand and lead-time uncertainty

Quantify how variability in demand and replenishment affects inventory requirements and stockout risk.

Inventory–service trade-off

Estimate how much inventory is required to achieve alternative service levels and identify inefficient policies.

Scenario simulation

Test how changes in demand, lead time or service targets affect inventory, shortages and working-capital requirements.

5 Blueprint

Required Conditions

Modeling tools

Typical KPIs

Historical demand or consumption data
Current inventory or replenishment information
Lead-time information
Existing reorder or stocking rules
Product or SKU identifiers
Service-level requirements

Demand-pattern diagnostics
Lead-time demand modelling
Safety-stock modelling
Reorder-point analysis
Monte Carlo simulation
Scenario and stress testing
Simulation-based policy optimisation

Average inventory
Inventory value
Fill rate
Stockout frequency
Lost demand
Safety stock
Reorder point
Order frequency
Service-level risk
Working capital exposure

6 Decision the Model can support

How much inventory do we actually need?

  • What service level can we achieve with the current inventory?

  • Where is excess inventory concentrated?

  • Which products contribute most to stockout risk?

  • How much inventory can be released without materially reducing service?

7 From Inventory to Action

Signal

Twin Interpretation

Possible Action

Inventory remains high while demand becomes less volatile

The current safety stock may be more conservative than necessary

Test lower reorder points or safety-stock levels

Stockouts concentrate in a small number of products

The problem may be product-specific rather than a portfolio-wide shortage of inventory

Reallocate inventory or differentiate service policies by SKU

Supplier lead time increases

Current reorder points may no longer protect the desired service level

Increase the reorder point, revise order frequency or evaluate alternative supply scenarios

Reducing inventory produces only a small change in service level

The current policy may operate above the efficient inventory–service frontier

Release working capital while maintaining an acceptable service target