OMSAN LOJİSTİK

Customer Service / Fill Rate Planning

Inventory Planning and Management

Latin America Logistics Center

Logistics Management Series -

Fill Rate Planning

Fill RateForecastingEOQReplenishmentPositioning

Inventory

Segmentation of the Logistics and Inventory Planning Strategy

Channel 1 Channel 2 Channel 3 Channel nA B C A B C A B C nA nB nC

Commodity 1ABC

Commodity 2ABC

Commodity 3ABC

Commodity nnAnBnC

The logistics strategy addressing customer service policy, inventory strategy, supply strategy, transportation strategy, and warehousing strategy should be segmented by channel and customer class within channel and by commodity and item class within a commodity.

What Customers Want?

Fill Rate Planning

• Optimum Fill Rate vs. Actual Fill Rate

• Customer Satisfaction

• Computer Assisted Fill Rate Planning

• Case Studies

DefinitionFill Rate

• Inventory Fill Rate is the Definition and Planning of the Product Availability to Satisfy Customer Orders

• Fill Rate should be defined by:– Product Type– Customer Type– Channel– Method of Evaluation

Optimum Customer Service Level / Fill Rate

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

50.0

00%

60.0

00%

65.0

00%

70.0

00%

75.0

00%

80.0

00%

85.0

00%

90.0

00%

92.5

00%

95.0

00%

97.0

00%

98.0

00%

99.0

00%

99.5

00%

99.7

00%

99.9

50%

Customer Service Level Measured as Fill Rate

Inventory Carrying Cost

Lost Sales Cost

Total Policy Cost

Total Inventory Cost vs. Fill Rate

• TIC = Lost Sales Cost + Inventory Carrying Cost = LSC + ICC

• LSC = Unsatisfied Demand x Unit Price x Scarcity Factor = AD x (1-FR) x UP x SF

• ICC = Average Inventory Level x Unit Inventory Value x Inventory Carrying Rate = AIL x UIV x ICR

Total Cost of the Inventory Policy

Annual DemandAD

% Unsatisfied Demand(1-ufr)

Unit Sales PriceUSP

Scarcity FactorSF

Lost Sales CostLSC = f(ufr)

Purchase Order CostPOC

Annual DemandAD

1/Unit Inventory Value.1/UIV

1/Inventory Carrying Rate. 1/ICR

Economic Order Quantity (half)EOQ/2

Lead TimeL

Unit Fill Rateufr

Forecast Errore

Safety StockSS

Average Inventory LevelAIL

Unit Inventory ValueUIV

Average Inventory ValueAIV

Inventory Carrying RateICR

Inventory Carrying CostICC = f(ufr)

Total Policy CostTPC = f(ufr)

+x

xx

x

x

EOQ = [(2*AD*POC)/(ICR*UIV)]1/2

SS = f(e, ufr, L)

+

Optimum Fill Rate Planning Parameters

• Inventory Carrying Rate (ICR)• Purchase Order Cost (POC)• Scarcity Factor (SF)• Unit Sales Price (USP)• Unit Inventory Value (UIV)• Lead Time (L)• Annual Demand (AD)• Forecast Error (e)

Expected Outcome

• Optimum Fill Rate

• Optimum Inventory Turnover

• Efficient Order Quantities

• Outcomes Segmentation– By Product/segment– By Customer/segment

ParametersInventory Carrying Cost

ParametersBy Product Type

OutcomeEconomic / Efficient Order Quantity

OutcomeAverage Inventory Value vs. Turns

OutcomeFill Rate Optimization

What Fill Rate?

SCENARIO 1SCENARIO 1

Part Ordered Received

A 1,000 990 B 2,000 1,990 C 4,000 3,990 D 2,000 1,990 E 1,000 990

Total 10,000 9,950

Line Fill Rate 0.0%

Order Fill Rate 99.5%

SCENARIO 2SCENARIO 2

Part Ordered Received

A 1,000 1,000B 2,000 2,000C 4,000 0D 2,000 2,000E 1,000 1,000

Total 10,000 6,000

Line Fill Rate 80%

Order Fill Rate 60%

Fill Rate by Product

PART FILL RATE

PART VALUE ($)

INVENTORY ($)

95% 95%

$1,054

$50

$1,384

$500

98% 0%

$1,216

$50

$0

$500

Same FILL RATEFILL RATE

Product Service Level

Probality of being in the

order*

95%

97% 3%

* Frequency that the part is needed

Keyboard

PC

CPU

95%

97% 3%

Different FILL RATEDifferent FILL RATE

Keyboard

PC

CPU

Order versus Product: Fill Rate?

Define: Pij = Probability that product j is required in order i

i = Proportion of orders i completed on time

j = Fill Rate product j

j jijP

i11

PRODUCT versus ORDER FILL RATE

Probability Productof being in Fill Ratethe Order

Product 1 0.9 0.95Product 2 0.9 0.95Product 3 0.9 0.9Product 4 0.6 0.8Product 5 0.6 0.8Product 6 0.6 0.8

ORDER FILL RATE = 0.57

Average FILL RATE = 0.87

Modeling Fill Rate Recommendations

A's B's C's D's E's TotalsLine Fill 91.66% 98.21% 72.90% 90.00% 92.6%Units per Line 29 6 3 1Fill Rate 99.7% 99.7% 90.0% 90.0% 0.0% 91.6%Turns 12.85 9.90 8.84 4.17 0 2.48 SKUs 1,068 2,080 4,884 20,097 40,720 68,849

%ActSKUs 3.8% 7.9% 17.3% 71.5% 0.0% 100.5%%CatSKUs 2.6% 3.0% 7.1% 29.2% 59.1% 100.0%%Sales 47.0% 32.0% 14.0% 7.0% 0.0% 100.0%UAIV 13,286$ 8,544$ 3,013$ 1,193$ #N/AUICC 5,580$ 3,588$ 1,266$ 501$ #N/ACAIV 14,189,935$ 17,771,402$ 14,717,300$ 23,985,323$ 15,651,000$ 86,314,960$ %CAIV 16% 21% 17% 28% 18% 100%CICC 5,959,773$ 7,463,989$ 6,181,266$ 10,073,836$ 6,573,420$ 36,252,283$ %Issues 83% 12% 4% 2%

Model vs. Current Fill RateBy Category

92,5%

90,0% 90,0%

85,0%

91,8%

98,1%

94,9%

86,7%

69,3%

93,0%

92,0%92,0% 92,0% 92,0%

92,0%

65,0%

70,0%

75,0%

80,0%

85,0%

90,0%

95,0%

100,0%

A+ A B C Total

Fill R

ate

Popularity Strata

Model vs. Current Fill Rate

DS - Model Unit Fill

RTS - Model Line Fill

Current Line Fill

$0

$20.000.000

$40.000.000

$60.000.000

$80.000.000

$100.000.000

$120.000.000

A+ A B C D Total

On-

Han

d In

ven

tory

Valu

e

Popularity Strata

Model vs. Current - Total On-Hand Inventory

Current On-Hand

Model On-Hand

The model results suggest an opportunistto save over $9.5 million in annual

inventory carrying cost and reduce theon-hand inventory by up to $22 million.

On-Hand Inventory Model vs. Current

Model vs. Current – DC On-Hand Inventory

$0

$5.000.000

$10.000.000

$15.000.000

$20.000.000

$25.000.000

$30.000.000

$35.000.000

$40.000.000

$45.000.000

$50.000.000

A+ A B C D Total

On

-Han

d In

ven

tory

Val

ue

Popularity Strata

Model vs. Current - DC On-Hand Inventory

Current On-Hand

Model On-Hand

Model vs. Current Service Stock

$0

$10.000.000

$20.000.000

$30.000.000

$40.000.000

$50.000.000

$60.000.000

$70.000.000

$80.000.000

$90.000.000

A+ A B C D Total

On-

Han

d In

ven

tory

Popularity Strata

Model vs. Current - RTS On-Hand Inventory

Current On-Hand

Model On-Hand

Model vs. Current Direct Sales Inventory Turns

16,7

6,34,8

1,50,0

6,86,0

3,82,9

1,50,0

4,6

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

A+ A B C D Total

Inve

nto

ry T

urn

s

Popularity Strata

Current vs. Model DS Inventory Turns

DS-Current Turns

DS-Model Turns

Model vs. Current Service Stock Turns

2,6

0,6

0,30,1

0,0

0,9

3,1

1,5 1,5

0,9

0,0

1,8

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

A+ A B C D Total

Inven

tory

Tu

rns

Popularity Strata

Current vs. Model RTS Inventory Turns

RTS-Current Turns

RTS-Model Turns

Model vs. Current Inventory Turns per Category

7,0

2,0 2,0

0,6

0,0

2,6

5,7

2,92,6

1,5

0,0

3,3

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

A+ A B C D Total

Inven

tory

Tu

rns

Popularity Strata

Current vs. Model Inventory Turns - Milpitas

Total-Current Turns

Total-Model Turns

Inventory Model Analysis

2,6%

3,0%

7,1%

29,2%

59,1%

47,0%

32,0%

14,0%

7,0%

0,0%

16%

20%

21%

27%

17%

0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% 70,0%

A's

B's

C's

D's

E's

%CAIV

%Sales

%CatSKUs

Recommendations from a Model of Fill Rate Planning

91,66%

98,21%

97,03%

90,00%

93,5%

92,0%

95%

97%

12,85

9,90

6,96

4,17

0

2,35 2,30 2,35 3,00

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

84,00%

86,00%

88,00%

90,00%

92,00%

94,00%

96,00%

98,00%

100,00%

A's B's C's D's E's Model Current Initial Target World-Class Target

Tu

rns

Fill

Rat

e

Line Fill

Turns

Recommendations from a Model of Fill Rate Planning

91,66%

88,58%

91,27%

90,00%

98,56%

99,70%99,10%

92,50%

13,9

9,8

5,9

3,4

8,78

5,8

3,3

0

2

4

6

8

10

12

14

16

85,00%

87,00%

89,00%

91,00%

93,00%

95,00%

97,00%

99,00%

101,00%

DS A's DS B's DS C's DS D's RTS A's RTS B's RTS C's RTS D's

Tu

rns

Fill

Rat

e

Line Fill

Turns

Inventory EquilibriumExercise using the Fill Rate Planner ®

Unit Fill Rate (UFR)

Economic Order Quantity (EOQ)

Total Policy Cost (TPC)

Inventory Carring Rate (ICR)

Purchase Order Cost (POC)

Scarcity Factor (SF)

Unit Sales Price (USP)

Unit Inventory Value (UIV)

Lead Time (L)

Annual Demand (AD)

Forecast Error (e)