Balancing safety-stocks across DCs

Earlier today I saw and responded to a question posted on the IBF (Institute of Business Forecasting & Planning) LinkedIn Group.  It's a question I come across often so I thought I would repost it here (with a few edits).

Question:  
How do I go about preparing an aged inventory analysis? I need to show fast moving,slow moving item, then I want to transfer product with in DC's that are slow so that the amount of SS is balance



Response:
I would be wary of moving stock between DCs ("re-deployment") as a means of balancing safety-stocks, it can be very expensive while providing no no real gain.  Balancing stock is typically best done by rebalancing inventory levels when you next acquire production rather than through re-deployment.  As a general rule don't move anything until you have to: if you do, you will certainly incur freight cost and you may not fix a real problem.

If your inventory levels are very low you may risk cutting orders.  So how do you know if your inventory levels are too low?  In my experience, most businesses operate based on rule-of-thumb guidelines and in doing so risk both excessive stocks and cut orders (across a range of products and locations).  Do you know what your safety-stock really needs to be?  I'm talking about a valid, statistical inventory-model taking into account demand uncertainty (related to your forecast accuracy), supply uncertainty and lead-times?  Or is it more of an educated guess ?

(FYI - the lead-time to move product between DCs is typically very much less than the lead-time for acquiring new production so if you are willing to include re-deployment as part of your ongoing solution you can manage with even less safety stock than a basic models may suggest.)

If you're projecting inventory to drop below this safety stock level within your lead-time, it's time to move your inventory.

At the other end of the scale, you may want to move product because otherwise it may expire through age or otherwise become obsolete.  Again though don't move it unless you have to.  A very similar calculation to that used for safety stock, that takes into account your demand uncertainty can tell you when you are danger of being over-stocked.   Assuming you will lose more money by throwing it away then you will by moving it across country, when inventory exceeds this maximum target, load up a truck and ship it to the closest/cheapest place that will sell through it.