Describing the Value Proposition of the Optimizer

Objective 1: Describe the value proposition( 主张) behind the optimizer and its capabilities

Why Optimizer

The optimization process determines the globally optimal solution based on predefined costs for
supply alternatives and demands.

Deployment optimization is an alternative to the finite priority heuristic for distribution planning that
is fully integrated in the end-to-end process.

Customers can use deployment optimization to support push, pull and mixed deployment strategies.

Value Proposition

 Network-wide optimization of distribution supply chain weighing local decisions against each
other

 Order generation with full traceability and root cause analysis

 Deployment Cost Generation results in easier cost setup based on business criteria

Capabilities

 Flexible definition of network cost model to support different business scenarios including
push and pull deployment

 Management of the impacts of complexity of network and constraints on runtime and

scalability

 Potential to fully exchange with deployment finite heuristic with respect to input/output data

The Order-based Planning optimizer considers order data that has been aggregated to daily periods to
calculate a cost-optimized supply plan, taking constraints into account. Costs are derived from the cost
rules maintained in planning run profiles, from dedicated cost time series, or from a combination of
both. At the end of an optimizer run, order elements are created and pegged to demand elements as
required.

Optimization can improve planning results in a variety of business cases. Optimization aims at fulfilling
the demands as far as possible under the given constraints. By planning the required production,
transportation, and procurement amounts while adhering to the modeled supply chain, the optimizer
creates a feasible solution.

A company usually has alternative sources of supply with different costs. The optimizer decides when
and where to produce, procure, store, or deliver. Depending on resource capacities, material
availabilities, and the defined costs it decides on the best sourcing option.
The optimizer enables cost-based planning. Independent of the use case, it always minimizes the total
cost of the supply plan. During the optimizing process, it searches through all feasible solutions to find
the most cost-effective solution in terms of total costs. Mixed integer Linear program

A solution is feasible for the optimizer when it respects all the planning constraints, for example, the
sourcing options and available resource capacities. A feasible solution can contain non-deliveries, that
is, not fully satisfied demands, safety stock constraint violations, or violations of other soft
constraints, such as quota arrangements. The optimizer violates soft constraints if they conflict with
hard constraints (for example, maximum lot-sizes), or if their violation is more cost-effective.

The most prominent costs are the costs of the sourcing decisions and the non-delivery costs for
demands. These costs are usually based on the amount of the material, for example, the transported
amount. But you can also define fixed costs. Fixed costs arise independently of the corresponding
amount and are typically used to avoid small transport amounts. Besides these scenario-defined costs,
the optimizer generates internal costs for pseudo-hard constraints, for example, for the violation of the
manually adjusted values. As these costs are very high, these constraints will not be violated if a feasible
solution exists that respects them.

Optimization is performed by transforming the supply planning problem into a mathematical model
Mixed Integer Linear Program (MILP). The output is a feasible, cost-optimized production, distribution,
and procurement plan for the selected supply chain network.

With the Deployment Run, the optimizer calculates the best supply distribution to satisfy the demands
(in this example, Forecast Demand and Sales Orders) with the existing supply elements within the
planning horizon.

Generally speaking, when using the optimizer, the following definitions apply:

 Safety Stock is the minimum number of stock units you require for a location product;

 Maximum Stock is the maximum stock level for a location product. Using this key figure, you
can limit production, external procurement, and transport receipts of a location product so
that the projected stock remains at or below the value;

 Excess Stock is what exceeds Maximum Stock for a location product.

The behavior of the optimizer should satisfy the following principles:

 The optimizer should fulfill all independent demands, then fulfill the safety stock levels of all
locations, then store up to the maximum stock levels of all locations, then store the excess
stock if available;

 Optimizer should push goods from production plant location to central distribution center
locations and keep goods preferably stored here until they are pulled by local distribution
center locations to cover customer demand;

If a situation in the supply chain network is such that supply is higher than demand and surplus exists,
that should be distributed in a fair manner among locations.