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Inventory Optimization:
Better Inventory Management through Forecasting and Planning
Company INFORM
INFORM Institute for Operations Research and Management INFORM Institute for Operations Research and Management Aachen, Germany Aachen, Germany Advanced Decision Support based on Operations Research, Fuzzy Logic
Optimization
Administrative IT Systems
First company ever to receive Enterprise Award First company ever to receive Enterprise Award by German Operations Research Society (GOR) by German Operations Research Society (GOR)
Company INFORM
Company Headquaters in Aachen, Germany
250
200
Since 1986, more than 24% Since 1986, more than 24% annual growth each year annual growth each year
150
1h
100
1.5h 2h
50
0 1 2 3 1969 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36
2005
Johannesburg Brisbane
100 %
-20 %
Minimising Inventories
0%
Return On Investment
Stock Value
Close to 100 % service level the required stock value tends to 'explode
sting od foreca go
High quality forecasting enables High quality forecasting enables to meet any stock availability target to meet any stock availability target with less inventories, with less inventories, and lower logistics costs! and lower logistics costs!
Combinations of models do well Combinations of models do well !! Parameters matter a lot Parameters matter a lot !!
Some M3-Competition results: Average symmetric MAPE for all data
Source: [Makridakis and Hibon 2000]
Demand Planning I
key-account structure
r ctu tru
.. .. ..
distribution center
e
..
warehouse
n gio re
s al
a are
customer storage
ion reg
..
y
variant product
ntr ou c
..
rld wo
product structure
Demand Planning II
Multiple Hierarchical Dimensions Multiple Hierarchical Dimensions Permanent Planning Consistency Permanent Planning Consistency: :
All changes will be automatically aggregated and All changes will be automatically aggregated and disaggregated within the entire planning hierarchy disaggregated within the entire planning hierarchy
Alternative use of quantities or values Alternative use of quantities or values Efficient editing of distribution keys Efficient editing of distribution keys
Annual Costs
cumulative costs
reorder point
lead time
Fixed Rythm Order Point Procedures Fixed Rythm / /Order Point Procedures Traditional method Traditional method Simple control mechanism (Kanban) Simple control mechanism (Kanban)
Economic Order Quantity Procedures Economic Order Quantity Procedures Various heuristical algorithms Various heuristical algorithms Optimisation: Wagner Within Algorithm Optimisation: Wagner Within Algorithm Extended to cover discount schemes Extended to cover discount schemes
Order A
Planning by Supplier
Planning by Shipment
Order B
Capacity Planning
Capacity compliant scheduling of production orders No setup time constraints, no order splitting, no sub-task planning Priority based capacity scheduling Identification of bottlenecks, and long-term capacity usage What-if scenario simulation capabilities
DC DC DC
Inventory Controlling
Inventory Controlling
SCM SCM
Numerical Complexity only for key items Decision Making is often de-centralised
(even within one company)
suitable
Analytical Analytical Systems Systems Statistics, Data Warehouse, Controlling, BI, etc. Focus on 'insight' no direct operations support
APS APS
Math. Models right decision level Coping with large data volumes Day-to-day Operations Support Synchronised with ERP / WMS
Download
add*ONE Server
add*ONE
Night Processing
ERP
System
add*ONE Clients
... add-on complementing rather than replacing existing IT functions ... add-on complementing rather than replacing existing IT functions
Benefits I
Example: Electrical Tools Manufacturer, Spare Parts Inventory
High service levels despite reduced stock levels. High service levels despite reduced stock levels.
[%] 100 Parts Availability
99
98
[Mio ]
11
Inventory
10
9 10. 17. 28. 06. 13. 20. 27. 04. 12. 19. 26.
April
May
June
Benefits II
Example: Energy Producer, Plant Maintenance Inventory
Return-on-Investment: Return-on-Investment: 20,000,000.- just months after add*ONE go-live 20,000,000.- just 77months after add*ONE go-live
110,0
105,4
100,0
- 20 Mio
90,0
85,5
80,0
70,0
Start add*One
Benefits III
Return-on-Investment, Example: Small manufacturing company, Return-on-Investment, Example: Small manufacturing company, 30,000 line items spare parts inventory of ca. Mio. value 30,000 line items spare parts inventory of ca. 77Mio. value
3,25 Aufwand (Personen) 3 2,1 2,1
Planning Workload
Staff Hours Reduced by 35%
88 85 80 85
Jahr
Service Level
(Materials & Parts Availability)
Improved by 10%
Servicegrad (%)
Jahr
Inventory Level
Reduced by 1.52 Mio. = (22%) in first year; yielding pay-back of invested software within 3 months!
Jahr
Linde Gas
More than 90 companies More than 90 companies in Europe, Asia, South America in Europe, Asia, South America