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Background: I am working on defining Target Days of Supply for a periodic review system with a review period of 1 week. I have weekly demand data for the complete year. I can calculate Mean weekly demand and standard deviation of the weekly demand.
Target Days of Supply is setup such that during each weekly review we compare these Target Days of Supply with available inventory in days. If Target Days of Supply < Available Days on hand inventory then more units are ordered to bring the inventory level up to Target Days of Supply. The orders are placed in such a manner that system looks in future to analyze when Target Days of Supply will go below Available days on hand and create an advance order.

For Example: Suppose we are reviewing in week "T". Lead time to produce an item is 4 weeks. Review is carried out on last day of each week. The system will look in future i.e. T+1 week, T+2....... T+n weeks to see when Target Days of Supply < Available days of inventory. Suppose at T+5 weeks the inventory Target Days of Supply < Available Days of inventory. The system will create an advance order to produce more units in T+2 weeks so that the product hits the inventory at the end of T+5 and start of T+6 weeks.

Question: To define Target Days of Supply, I am trying to calculate the Target Inventory Level. I know that for a periodic review system where we place an order and wait for the order to arrive after lead time, target level should be = "Mean Demand per week(Lead Time + Review Period in weeks) + Safety Stock (during lead time + review period)"*.

In this specific case as we are looking in future and placing production order in advance considering the lead time, will the target level of units calculation change to = "Mean Demand per week(review period) + Safety Stock (during lead time + review period)"?*

Or the formula will remain unchanged as = "Mean Demand per week(Lead Time + Review Period in weeks) + Safety Stock (during lead time + review period)"*.

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The target level of inventory should be based on how many weeks of inventory you want on hand. Whether it is called lead time or review period, the safety stock plus mean demand should both be calculated based on the number of weeks you want on hand.

If you want (lead time + review period) number of weeks of inventory on hand, then you should leave the calculation unchanged. If you want a different quantity on hand, then you might want a different change than the one you proposed.

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  • $\begingroup$ Hi Wesley, Thank you for the response. The intent is to set minimum target days of supply such that we have higher than 98% service level. In general formula the review period is longer than the lead time. Here I see that multiple review period will come in between the lead time of the product. Hence, trying to understand how the formula will change. General formula: target level is equal to demand (during lead time + review period) + safety stock during (during lead time + review period). $\endgroup$
    – 0202SupplyChainOperations
    Commented Jan 16 at 13:22
  • $\begingroup$ We might be using the term "target days of supply" in different ways. I understand it to be the number of days of supply that is desired to have on hand in case there are exceptions of refilling supply so that demand can still be satisfied. In this view, the amount incoming contributes to the inventory level, not changing what the target is. Are we thinking about this differently? $\endgroup$
    – Wesley Dyk
    Commented Jan 16 at 22:09
  • $\begingroup$ ‘Target Days of Supply’ (TDS) meets demand for a specific period, with additional units ordered if needed. The challenge is determining the minimum TDS given weekly inventory reviews, forecasts, and a lead time exceeding the review period. TDS can be found using the ‘Target Level of Inventory’ (TLI), which adjusts when lead time is less than the review period. Typically, TLI = Demand (during lead time + review period) + Safety Stock (during lead time + review period) when lead times are smaller than review period. I am trying to understand the change in formula when lead time>review period. $\endgroup$
    – 0202SupplyChainOperations
    Commented Jan 17 at 15:18
  • $\begingroup$ Justo to add clarity to the Target Days of Supply (TDS). So during each review period the user will compare the TDS with the Available days of inventory (ADI) on hand. If the ADI<TDS then the user will order more. Suppose the demand for weeks are as follows: Week 1 = 10 Week 2 = 20 Week 3 = 50 If your TDS is 14 then the demand it needs to cover is 10+20 = 30. If available inventory is 10 then your ADI is 7 days. As your TDS is more than ADI the user will put more orders to bring ADI = TDS. So the user will order 20 more units. $\endgroup$
    – 0202SupplyChainOperations
    Commented Jan 17 at 16:41
  • $\begingroup$ Hi @wesley, Do you have any suggestions? Does my comment provide any clarity? $\endgroup$
    – 0202SupplyChainOperations
    Commented Jan 22 at 14:33

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