Setting Optimal Levels of Product Availability in Practice

5 SETTING OPTIMAL LEVELS OF PRODUCT AVAILABILITY IN PRACTICE 

Use approximate costs because profit-maximizing solutions are quite robust. Companies should avoid spending an inordinate amount of effort to get exact estimates of various costs used to evaluate optimal levels of product availabihty. It is not crucial that all costs be estimated precisely because a reasonable approximation of the costs will generally produce targeted levels of product availability that are close to optimal. 

Tailor your response to uncertainty. A manager should recognize that strategies such as quick response and postponement are most effective when the underlying unpredictability is large. Thus, for the portion of demand that is relatively predictable, one should focus on the lowest cost production method, even if it is not responsive. The unpredictable portion of demand, however, should be served using a more responsive approach (postponement or quick response), even if it is more expensive. 

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