Demand & Inventory Optimization
More inventory doesn't solve the problem — it just hides it. The right inventory level is the result of accurate forecasting and a safety policy fitted to each SKU, not one flat number for the whole warehouse.
What We See
All SKUs are managed under the same inventory policy
A high-value, low-demand item follows the same ordering policy as a low-value, high-demand one — the result is dead capital where it shouldn't be, and stockouts where they shouldn't happen.
Demand forecasting relies on a simple average
For items with seasonal or irregular patterns, a simple moving average produces large forecast error that translates directly into excessive or insufficient safety stock.
Safety stock has never been reviewed
Safety stock parameters are usually set once at initial system setup and, despite changes in demand pattern or lead time since then, have stayed untouched.
Stockouts and excess exist in the warehouse at the same time
This is the classic symptom of missing classification: some SKUs are chronically short, others haven't moved in months — and both sit side by side on the same warehouse shelves.
Our Approach (The DDIT Framework)
Diagnose
Calculating current forecast accuracy (MAPE) and analyzing the consumption pattern of each SKU to identify the items with the highest forecast error and the most tied-up capital.
Design
ABC-XYZ classification of the full SKU portfolio and designing a distinct safety stock policy for each class combination, along with selecting a forecasting method fitted to each group's pattern (exponential smoothing for seasonal items, simple average for stable ones).
Implement
Rolling out the new policy on a limited product category (Class A, for instance) and monitoring results weekly before extending it to the full portfolio.
Transfer Capability
Training the inventory planning team on how to periodically review the classification and adjust parameters as demand patterns shift in the future.
Deliverables
- Full ABC-XYZ classification of the SKU portfolio
- Distinct safety stock policy for each class combination
- Demand forecasting model fitted to each product group's pattern
- EOQ calculation for high-volume items
- Report identifying dead stock and chronically short items
- Playbook for periodic review of classification and parameters
Engagement Models
Diagnostic Sprint
Initial ABC-XYZ classification and quick identification of the SKUs with the most improvement opportunity, in two to three weeks.
Full Transformation
Full design and rollout of inventory policy and forecasting models across the entire SKU portfolio.
Ongoing Advisory
Quarterly review of classification and parameters as market and seasonal patterns shift.
Who This Is For
For manufacturers or distributors with several hundred SKUs or more, particularly in industries with seasonal or irregular demand like food and consumer goods.
Frequently Asked Questions
ABC classifies purely by consumption value. XYZ adds a second dimension: demand stability. Combining the two creates a 9-cell matrix that sets inventory policy more precisely than one-dimensional ABC alone.
Items with no history are typically treated as Class Z (irregular) with a more conservative safety stock policy until enough data accumulates for more accurate classification — usually after three to six sales periods.
At minimum, 12 months of SKU-level sales or consumption history, each item's supply lead time, and approximate ordering and holding costs. More precise data produces more precise results, but incomplete data doesn't block getting started.
This depends entirely on the current demand pattern's variability and the quality of the existing policy, and can't be quantified before analyzing the organization's real data; what can be guaranteed is a simultaneous reduction in both stockouts and excess through a policy fitted to each SKU.
For industries with seasonal demand, a quarterly review is recommended. For more stable industries, a six-month or annual review is usually enough, unless a major shift occurs in the market or product portfolio.
Ready to talk about this domain?
Tell us about your organization's specific challenge, and we'll recommend the right engagement model.