IBM Sales and Distribution Solution Brief

Consumer Products

Inventory Optimization for the Consumer Products Industry

Introduction Highlights

Helps improve service levels and reduce working 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

How 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 with global 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.

IBM Sales and Distribution Solution Brief

Consumer Products

Multi-Echelon Inventory Optimization

What impact does each supplier have on the entire supply chain? Which facilities should be make to order or make to stock?

How should shipments and policies be coordinated?

How should I take advantage of centralization to reduce inventory?

Procurement

Manufacturing

Packaging & Distribution

Customer Service

What is the cost of differentiating inbound service levels from supliers?

What sould be the postponement strategy? Where should components / semi-nished products be kept?

How much inventory of each SKU should be at each location in the supply chain?

What is the impact of changing the promised service times to customers?

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

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 erce 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, dened 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 and location-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, seminished and nished goods inventory to improve inventory turns, service levels and

IBM Sales and Distribution Solution Brief

Consumer Products

cash ow 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.

During the rst 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 rst 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 workows enabled specically for your organization, along with:

Inventory optimization from IBM: A phased approach at multiple levels

IBM offers consumer products companies a global, multiechelon, multiuser inventory optimization and planning process that complements existing ERP and APS systems. IBMs indepth 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, workow and operating environment. 3. Design and develop workows and integration in detail, followed by testing, change management and go-live.

User home-page with alerts and reports and a one-page view for planners Fill rate optimization Service levels Customer service Demand forecasting Congurable reporting for creating and saving reports Data maintenance and automated review

IBM Sales and Distribution Solution Brief

Consumer Products

Our Inventory Optimization Solution - From Desktop to Enterprise

SAP

Work Flows, Integration to SAP Enabled for your Enterprise

Data maintenance; Auto-review

User home-page with alerts and reports; 1-page view for planners

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

Congurable reporting for creating and saving reports

Fill Rate Optimization

Inventory

Strategic Stand-Alone
70% 80% 90% Serivce Level 100%

Demand forecasting

Service Level Tradeoff

Customer Service

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

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.

specic 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:

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

ILOG Inventory Analyst. Powered by SAP NetWeaver, this module helps nd 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 nished goods inventory throughout the supply chain to improve inventory turns and increase cash ows.

IBM Sales and Distribution Solution Brief

Consumer Products

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 Proler. This module analyzes historical data to create a demand forecast and forecast error.

what factors inuence 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.

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 protability, 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 Strategy and Transformation Services for inventory 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 crossfunctional 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 signicant number of leading supply chain strategy projects over the last several years. Because inventory optimization requires signicant change, we provide process and change management as part of our strategy and transformation services. Our consultants use leading edge

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, so users can interact with inventory information at any point and develop models quickly and condently. 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

IBM Sales and Distribution Solution Brief

Consumer Products

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.

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.

ERP and APS integration services for inventory optimization: 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 brieng 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

Data Integration Model - IA and SAP (ES)

Provide support for SAP Enterprise Services as well
Data Load/Extract in SAP using SAP BAPI/IDOC/QISS

ECC
SD MM PP QM PM HR FI CO TR PS WF

SAP R/3
IS

Data to/from in SAP and IA Formats

Data Mapping and communication

Data in SAP Format

BI
SA

E ta Da

s tor ac xtr

SAP Delivered - CIF

Time phased Safety stock

IA Data Repository Data in IA Format

Data Mapping and communication

PD Pla elive nnin red gA -C rea ube Loa to d BI

Da ta E

Indicative List of APO BAPIs

xtra cto rs

BI

Extractor SAP BAPI

Data Mapping & Communication

Data in SAP Format

Extract From SAP using SAP BAPI /QISS, or SAP Table

APO

SAP Resident Data Flow

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

IBM Sales and Distribution Solution Brief

Consumer Products

Business Analytics Optimization services for inventory optimization

Business Analytics Optimization services from IBM Global Business Services can help consumer products companies realize business optimization objectives faster with less risk and at 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.

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 ll 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.

Conclusion
Changing 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 signicant inventory planning 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 ow 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 positive nancial results for our clients.

The benets 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

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