Lost sale model in MIPO

[thamizhchelvan_gunasekara]

Hi Guys,

How the lost sale model selection (constant or proportional) impact the safety stock/target inventory calculation in MIPO.

BR

Thamizh

[Former Member · Accepted solution]

Hi Thamizh,

In MIPO, the lost sale model selection does not impact the safety stock/target inventory calculation at all. It only impact the lost demand output for the external demand streams/independent demand.

For the internal demand streams/dependent demand, we assume all the demand are fully backordered.

Hope this helps.

Best Regards,

Lei

[thamizhchelvan_gunasekara · Accepted solution]

Hi Lei,

Thanks for your input, can you elaborate  more how the constant and proportional factor impact the demand stream and its important.

Thanks again for your support.

BR

Thamizh

[Former Member · Accepted solution]

Hi Thamizh,

The selection of lost sales model impacts the demand-stream lost sales output calculation through lost sales percentage.

As some background, to calculate lost sales for an external demand stream, we first calculate unmet demand based on the distribution of uncertain demand, MIPO calculated safety stock, and supply parameters such as batch size, lead time, etc. We then multiply unmet demand by lost sales percentage to calculate final lost sales (assuming certain percentage of unmet demand are truly lost). How the unmet demand is calculated is irrelevant to the lost sales model. How the lost sales percentage value is modeled/used is determined by the lost sales model.

If the "constant" lost sale model is selected, we assume the lost sales percentage is fixed for any service level. The input lost sales percentage per demand stream is applied to unmet demand to calculate the final lost sales for each customer demand stream.

If the "proportional" lost sale model is selected, the lost sales percentage can vary by target service level. In this case, the MIPO module setting "loss free service level" and the demand-stream input "minimum service level" are used additionally for determining the lost sales percentage. There are three cases: 1) if the target service level is greater than and equal to the "loss free service level" setting (MIPO module setting), lost sales percentage is considered to be zero. 2) if the target service level is smaller than and equal to the "minimum service level" input (demand stream specific), the input lost sales percentage is used. 3) if the target service level is between the loss free service level and the minimum service level, we assume such relationship exists between lost sales percentage and target service level: lost sales percentage = input lost sales percentage * (loss free service level - target service level) / (loss free service level - minimum service level). As the target service level goes up, lost sales percentage decreases

In summary, the lost sales model impacts lost sales output of customer demand streams through lost sales percentage.

Hope these helps.

Best Regards,

Lei