Inventory Optimization for the Consumer

7/30/2019 Inventory Optimization for the Consumer

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IBM Sales and Distribution

Solution Brief

Consumer Products

Inventory Optimizationfor the ConsumerProducts Industry

Highlights

Helps improve service levels and reduceworking capital costs by enabling

improved inventory planning and

optimization

Dynamically adjusts inventory levels

using tested planning methodology

Facilitates coordinated, multi-echelon

inventory planning for the entire

consumer products supply chain

IntroductionHow do you efficiently manage your working capital in the supply

chainin particular, capital that is tied up in inventory? What type of

ERP systems do you have and are you complementing them withglobal inventory optimization capabilities? Have you optimally

determined where, when and how much inventory you should hold for

each product? How do you determine how much inventory to keep close

to customers versus close to manufacturing facilities?

IBM offers an inventory optimization solution that can help consumer

products companies who want to increase the efficiency of their inventory

planning processes. This solution facilitates coordinated, integrated,

multi-echelon inventory planning and provides insight into the optimal

level of inventory needed to improve turns and service levels while

freeing working capital. To enable successful outcomes, IBM has deep

experience with enterprise resource planning (ERP), advanced planning

and scheduling (APS) and supply chain management. In addition, we

offer state-of-the-art mathematical algorithms and technology to help

optimize inventory levels for the whole supply chain.


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IBM Sales and Distribution Consumer Products

Solution Brief

Why inventory optimization?In the consumer products industry, the emergence of inventory

optimization over the last few years is the result of a variety of

factors. The pressure to reduce costs in a volatile commodity

market re-emphasized the importance of lean operations.Consumer and shopper expectations for service have increased.

In an era of fierce competition, it is becoming more critical to

ensure on-shelf availability and satisfy desired levels of service

in the supply chain. The increased complexity of globalized

supply chains, defined by the introduction of copackers and

comanufacturers on the supply side, outsourcing engagements

on the distribution side and differentiated service requirements

for various sales channels, makes supply chain and inventory

planning more difficult. Inventory optimization can ease

this burden.

The typical inventory planning strategy for most of the industry

is built on local planning practices. Each location in the supply

chainretail warehouses, local and regional distribution centers

and even plantsconducts its own inventory planning, using

planning practices established many years ago or individual andlocation-based metrics. The inventory planning strategies can

range from generic coverage policies, differentiated coverage

policies, min-max inventory to order-up-to levels. In todays

competitive and demanding marketplace, this type of inventory

planning leads to low inventory turns, inconsistent service levels

and lack of understanding of the full picture.

Global, multi-echelon (Figure 1) inventory optimization

strategically positions raw materials, semifinished and finished

goods inventory to improve inventory turns, service levels and

Multi-Echelon Inventory Optimization

What impact does each

supplier have on theentire supply chain?

What is the cost ofdifferentiating

inbound servicelevels from supliers?

What sould be thepostponement

strategy? Whereshould components /semi-finished products

be kept?

How much inventory

of each SKU shouldbe at each locationin the supply chain?

What is the impact ofchanging the promised

service times to customers?

Which facilitiesshould be make toorder or make to

stock?

How should shipments andpolicies be coordinated?

How should I takeadvantage of

centralization toreduce inventory?

Customer ServiceManufacturingProcurement Packaging &Distribution

Figure 1: How multi-echelon inventory optimization works for consumer products


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Solution Brief

cash flow and to free working capital. Individual islands of

planning are replaced by enterprise optimization capabilities

that look at the demand signals coming from retailers or

point-of-sale data and set the inventory levels for each product

in the supply chain. Consumer products companies can mitigate

the risk of excess inventory resulting from bullwhip effect

(the increase in demand variability in the supply chain from

downstream to upstream). The result is coordinated inventory

planning for the entire supply chain that reduces inventory and

costs and speeds responsiveness to changing demands.

With a strong portfolio of solutions and services, this is the

type of next-generation inventory planning that IBM offers

consumer products companies.

Inventory optimization from IBM: Aphased approach at multiple levelsIBM offers consumer products companies a global, multi-

echelon, multiuser inventory optimization and planning process

that complements existing ERP and APS systems. IBMs in-

depth understanding of the ERP landscape, planning gaps and

multiple delivery capabilities are key enablers of success. Proven

planning methodology adjusts inventory levels dynamically,

improving inventory planning and service levels, which can lead

to reduced inventory holding costs.

The IBM solution approaches the successful delivery in

three phases:

1. Assess the current operating environment and goals and

identify ROI using a small-scale modeling effort.

2. Develop the high-level design, factoring in architecture,

workflow and operating environment.

3. Design and develop workflows and integration in detail,

followed by testing, change management and go-live.

During the first phase, IBM will assess the current inventory

planning practices, review the current processes and use

inventory optimization technology to conduct a pilot

study. Your ERP system provides the primary inputs and

IBM technology makes optimal recommendations for the

inventory requirements in your network. We also offer holistic

insight into tradeoffs in the supply chain, such as desired service

level versus inventory, proposed customer response time

versus inventory and forecast error versus inventory, and we

proactively recommend service levels by product and location.

Especially in the first phase of delivery, our emphasis on the

strategic aspects of optimization will identify inventory drivers

and return on investment. The strategic level evaluation can

contribute to the high level design as IBM helps companies

consider postponement, supplier sourcing, transportation

options, make versus buy, central stocking and more. As the

process moves towards the deployment and implementation

phase, the same models developed in the earlier phases can be

put into operational use with proper integration technology.

The state of the art inventory optimization can be seamlessly

integrated with your ERP solution and the workflows enabled

specifically for your organization, along with:

User home-page with alerts and reports and a one-page view

for planners

Fill rate optimization Service levels Customer service Demand forecasting Configurable reporting for creating and saving reports Data maintenance and automated review


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Solution Brief

The components of the solution (Figure 2) include

IBM ILOG and SPSS software, along with strategy and

transformation, enterprise application integration and business

analytics optimization services from IBM Global Business

Services.

IBM ILOG Inventory and Product Flow Analyst

IBM ILOG Inventory and Product Flow Analyst is an

integrated solution for supply chain and inventory optimization

that enables both strategic and tactical planning. It includes

different optimization modules that you can use to address

specific supply chain problems. Modules use a common

database so users can quickly move from one module to

another. Built-in integration capabilities make it possible to

connect to other systems, such as your ERP or APS system.

The modules include:

ILOG Inventory Analyst. Powered by SAP NetWeaver, this

module helps find the true and hidden drivers of inventory

(such as forecast error, lead times, lot size and so on), so

that companies can prioritize improvement opportunities

based on overall inventory impact. It strategically positions

raw materials, work in progress (WIP) and finished goods

inventory throughout the supply chain to improve inventory

turns and increase cash flows.

Our Inventory Optimization Solution - From Desktop to Enterprise

Work Flows, Integration to SAPEnabled for your Enterprise

User home-page with alerts and reports;

1-page view for planners

Fill Rate Optimization

Service Level Tradeoff

Multi-echelon inventory: The right inventorylevels for each SKU at each location

Customer Service

Configurablereporting for creating

and saving reports

Data maintenance;

Auto-review

StrategicStand-Alone

SerivceLevel70% 80% 90% 100%

Inventory

SAP

Demand forecasting

Figure 2: IBM offers an inventory optimization solution that moves from desktop to enterprise


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Solution Brief

ILOG Product Flow Optimization. The Product

Optimization module helps businesses analyze transportation,

warehousing, inventory carrying costs and service

requirements to determine the optimal product delivery

paths. Companies can view and export solution alternatives

to tables and graphs for presentations and further analysis. ILOG Demand Profiler. This module analyzes historical

data to create a demand forecast and forecast error.

The combination of these modules provide enterprise

multi-echelon inventory optimization for integrated inventory

planning in an existing ERP system and strategic multi-echelon

inventory optimization to determine strategic shifts in inventory

policies and practices.

In short, the IBM ILOG Inventory and Product Flow

Analyst technology can help your consumer products company

turn supply chains into drivers of profitability, efficiency and

growth. You also get the answers to a broad range of business

questionsfrom determining the right inventory policies and

strategic positioning of inventory, to the ongoing setting of

safety stocks and inventory levels in operational environments.

IBM SPSS Modeler

IBM SPSS Modeler is a powerful, versatile data and text

analytics workbench that helps you build accurate predictive

models quickly and intuitively without programming.

Interactive streams visually map the data mining process, sousers can interact with inventory information at any point and

develop models quickly and confidently. These timesaving

techniques lead to greater efficiency and accuracy and lower

overhead costs.

SPSS Modeler can help your consumer products company

discover patterns and trends in inventory management and

planning more easily, using a unique visual interface supported

by advanced analytics. Users model outcomes and understand

what factors influence multiple levels of inventory so they can

take advantage of opportunities and mitigate risks. Companies

can choose from a complete range of advanced analytical

functions, including state-of-the-art algorithms, automated

data preparation and rich, interactive visualization capabilities.

For example, using IBM SPSS Modeler, a company can analyze

historical data for all items in its inventory. It can then chart

the demand life cycle for each item and generate demand

forecasts. Based on these forecasts, analysts can apply simple

planning rules to make decisions about what parts to stock

and what parts to pull from the shelves in any given store.

IBM Strategy and Transformation Services forinventory optimization

IBM Strategy and Transformation combines IBMs

management consulting capabilities with executable strategies

to enable client success, providing differentiation with

technology-enabled transformation. Our expertise can help

you plan and implement end-to-end inventory optimization,

from strategy to implementation, and gain efficiency in cross-

functional collaboration. As part of inventory optimization

from IBM, we call on the experience of the IBM Supply Chain

Strategy practice, which focuses on identifying and quantifying

supply chain improvements and assisting clients in transforming

their operations, from suppliers to ultimate customer, to enable

strategic change and competitive advantage. In addition,

IBMs Supply Chain Strategy experience has allowed for the

development of tools and templates to accelerate projects and

reduce risk for our clients. These tools represent the combined

experiences from significant number of leading supply chain

strategy projects over the last several years.

Because inventory optimization requires significant change, we

provide process and change management as part of our strategy

and transformation services. Our consultants use leading edge


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Solution Brief

change strategies to manage business transformation and realize

the value in major program implementations, such as global

and multi-echelon inventory optimization. We also provide

project management to facilitate the transformation, creating

organizational design and governance plans that align

individuals and teams.

ERP and APS integration services for inventoryoptimization: IBM and SAP

No one is a bigger systems integration partner with SAP

than IBM. We have broad SAP application knowledge,

both technical and functional, and a dense combination of

competence centers, labs, sales support centers and briefing

centers all dedicated to ensuring that our clients get the most

out of their SAP application implementations. We also respect

the fact that no two SAP application implementations are the

same and that strategic business requirements drive unique

twists. Our integration tools are designed for real-time, batch

integration or both. We have installed thousands of SAP

adaptors and our tools enable business users to change

integration parameters while supporting SAP business services

and models (Figure 3).

For the SAP integration needed for effective inventory

optimization, we offer several alternatives. For companies that

need to retrieve inventory data directly from their SAP

implementations, we can either use Advanced Business

Application Programming (ABAP) or SAP Process Integration.

SAP Process Integration provides mapping and error handling

using, which is faster and more robustand offers better

control. We can also use any middleware or ETL tools that our

clients are comfortable with for the integration processes.

Data Integration Model - IA and SAP (ES)

Provide support for SAP

Enterprise Services as well

ECC

Data Mapping &

Communication

Data Mapping and

communication

Data Mapping and

communication

Data to/from

in SAP and IA

Formats

Data in IA

Format

BI

Extractor

SAP

BAPI

IA Data

Repository

Indicative List of

APO BAPIs

Time phased

Safety stockSAPDelivered-Cubeto

PlanningAreaLoadBIDataExtractors

Data in SAP

Format

SAP Resident Data Flow

Extract From SAP

using SAP BAPI

/QISS, or SAP TableAPO

FI

CO

TR

PS

WF

ISHR

PM

QM

PP

MM

SD

SAPDeliv

ered-CIF

BIDa

taEx

tracto

rs

Data Load/Extract

in SAP using SAP -

BAPI/IDOC/QISS

SAP R/3

Data in SAP

Format

Figure 3: How your data can be integrated with your ERP


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Solution Brief

Business Analytics Optimization services forinventory optimization

Business Analytics Optimization services from IBM Global

Business Services can help consumer products companies

realize business optimization objectives faster with less risk andat a lower cost using an effective information strategy. Applied

throughout the enterprise or deep in a business function,

Business Analytics Optimization provides resolution that spans

policy, analytics, business process, organization, applications

and data.

With help from IBM experts, consumer products companies

can improve inventory operations by tackling and solving

their most complex inventory problems and creating unique

predictive capabilities for intelligent inventory management

decisions. IBMs advanced innovative research in data analytics

and optimization helps us establish a proactive versus reactive

strategy for optimizing inventory. Our Business Analytics

Optimization consultants can also provide strategies for

improving inventory decision-making, productivity and

efficiency in an environment where relevant, actionable,

accurate and timely information is used to monitor and improve

inventory management.

The benefits of inventory optimization from IBM

The combination of IBM inventory optimization software with

services from IBM Global Business Services helps consumer

products companies determine what product should be made

where, when and how much. In addition, the solution can be

used both strategically to answer high-level questions and

tactically when integrated with an ERP system to set optimal

inventory levels on an ongoing basis. For example, the solution

can help your company not only accurately capture inventory

requirements in current and future networks but also capture

business rules that take into account service times and customer

fill ratesall in the same process. Our scenario analysis

capabilities can help you assess the impact of different networks

on inventory levels and our experts can work with you to

develop warehouse space requirements and identify possible

bottlenecks. The result is optimized inventory levels at all tiers

of your network.

ConclusionChanging consumer behavior has resulted in the need for

extensive product portfolios, faster time to market, reduced

capital outlays and improved service levels. Combined with

globalization and heightened supply chain complexity,

consumer products companies face significant inventoryplanning challenges. Inventory optimization can help reduce

inventory and working capital costs and speed responsiveness to

changing demands by facilitating coordinated inventory

planning for the entire supply chain.

IBM provides an inventory optimization solution that facilitates

coordinated, multi-echelon inventory planning and provides

recommendations for the optimal product flow to help improve

inventory turns and service levels while freeing working capital.

Our deep experience with ERP and APS systems and supply

chain management, along with state-of-the-art mathematical

algorithms and technology, enable us to provide positivefinancial results for our clients.


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For more informationTo learn more about the [enter the name of product or offering

here], please contact your IBM marketing representative or

IBM Business Partner, or visit the following website:

ibm.com/consumerproducts

Additionally, financing solutions from IBM Global Financing

can enable effective cash management, protection from

technology obsolescence, improved total cost of ownership and

return on investment. Also, our Global Asset Recovery Services

help address environmental concerns with new, more energy-

efficient solutions. For more information on IBM Global

Financing, visit:ibm.com/financing

Copyright IBM Corporation 2011

IBM Corporation1 New Orchard RoadArmonk, New York 10504-1722U.S.A.

Produced in the United States of AmericaMarch 2011All Rights Reserved

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trademark symbol ( or ), these symbols indicate U.S. registered orcommon law trademarks owned by IBM at the time this informationwas published. Such trademarks may also be registered or common lawtrademarks in other countries. A current list of IBM trademarks isavailable on the web at Copyright and trademark information atibm.com/legal/copytrade.shtml

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Inventory Optimization for the Consumer