Supply Chain Planning Blog

Run Your Supply Chain without a Bullwhip!

Posted by Cyrus Hadavi on Thu, Feb 26, 2015
bullwhip

Bullwhip or Forrester effect is result of uncertainty and changes in demand that magnify as we move upstream in the supply chain. The farther upstream the supplier is, in the supply chain, the more variations in inventory levels.  Unfortunately this behavior is taken for granted for most industries. Some advocates of Kanban and JIT believe that using these techniques would eliminate such behavior and makes the supply chain more predictable to the extent that large variations are avoided. This is not a true assumption for the following reason. Kanban and JIT are not planning tools, they are execution methods. Hence they cannot be used to dynamically plan ahead of time when there are inevitable variations in demand. When you design your supply chains with a certain demand in mind, then as the demand goes down, Kanban would react accordingly unless your buffers are too large such that much of the inventory will remain unused between stages resulting in excess inventory. If the buffers are NOT big enough to avoid the excess inventory problem, then it is likely that shortages will occur when there is a surge in demand? The buffers are all used up and the pipeline will sit empty resulting in shortages and loss in revenue etc.

Here are some observations and reasons why we no longer have to run our supply chain under the assumption of bullwhip phenomena. We all know that plans are not perfect however re-planning is the key and doing it fast and in parallel is the reason why we can avoid BW effect. This is explained in more detail below. 

From Serial to Parallel

Bullwhip happens because of the serial behavior of the supply chains. In other words each downstream stage tells the stage before it until it gets to the first stage. This delay is one of the reasons for the rise in the amplitude of the inventory. However this behavior can be changed by providing multiple levels of visibility upstream using collaboration tools. Such tools can be set up to send signals to suppliers as far back as needed in order to share with them the trends in demand that are observed in the consumer behavior. Using point of sale information as well as demand signaling and demand planning technologies, the information shared can save suppliers much cost as well as make them a better and more reliable supplier.

Whole vs Segments

Another notion related to parallel analysis of the supply chain has to do with how the buffers are set up at various stages of the supply chain. In contrast to the traditional techniques of each stage deciding on their own inventory levels before, during and after that stage, Multi Echelon Inventory Optimization (MEIO) technology looks at the entire supply chain and each layer thereof in parallel, not in an isolated and serial manner. Using probability and queuing theory it can make fairly accurate predictions as to how much inventory of each item should be at every stage of the supply chain to avoid shortages and/or excesses yielding unprecedented delivery performance while minimizing cost. Such a parallel treatment of the supply chain would eliminate the BW effect and change it to a “stick effect.” MEIO takes into account both the cost and service levels at every stage given the lead-times and interactions between stages to produce a holistic solution not an isolated serial solution. 

Responsive vs Predictive

The more responsive we are the less predictive we need to be. Widespread use of cell phones have made all of us a lot more responsive. As a result we do a lot less planning. How many times have you heard someone saying “I will call you when I get there.”  In the past you had to specify exact time and location to meet up with someone! Today’s S&OP technology allows real-time planning to be more responsive. In other words within hours a new plan can be generated if and when there is a change in demand or supply. Obviously faster planning does not eliminate the time it take to physically build and transfer goods, however it does significantly shorten the cycle time to delivery. Hence it can reduce the potential amount of inventory quite considerably resulting in a more stable supply chain rather than a BW supply chain. This is more of a responsive planning in contrast to predictive planning. 

Risk Factor

The value of an item at the most downstream point in the supply chain is several times higher than the cost of an item at the most upstream location! So if you look at the weighted variation of inventory taking into account cost factors, then the variation in value is fairly constant and not as variable as the quantity depicted in the BW. This is a key issue in balancing the supply chain and risk management. In order to ensure the availability of parts, the upstream locations can take higher risks than the downstream locations. However, the way the supply chains are set up today, the reward/risk ratio is a lot higher for the downstream companies than the upstream suppliers. By making this ratio more equitable, much better and more efficient supply chains can result in terms of adaptability and responsiveness. One way to do this is a commitment to buy a minimum amount within a defined window of time. With this level of confidence, suppliers can assess their own risk and not only ensure delivery of what is needed but take additional risk knowing that they have some level of downside protection.

Although BW effect may not be completely eliminated however the size of the waves can be significantly reduced resulting in a much more stable and predictable supply chain.

Topics: Multi Echelon Inventory Optimization, Supply Chain, Supply Chain Planning, Supply Chain Performance Management, MEIO, Inventory Management Software, Inventory Management, Sales & Operations Planning, S&OP

Inventory Optimization is like Baseball's Moneyball

Posted by kameron hadavi on Wed, Oct 10, 2012

iStock Baseball Money XSmall resized 600

How do the Oakland A’s achieve results like this at a fraction of cost of a team like the Yankee’s?

2002 New York Yankees: Team Salary $126 million; 103 Wins 59 Losses; Division Winner
2002 Oakland Athletics: Team Salary $ 40 million;   103 Wins, 59 Losses; Division Winner
2012 New York Yankees: Team Salary $198 million; 94 Wins 68 Losses; Division Winner
2012 Oakland Athletics: Team Salary $ 55 million;   93 Wins, 69 Losses; Division Winner

You have most likely seen or heard of the story behind the movie “Moneyball”.  In 2002 the Oakland Athletics had a very limited budget to “carry” their team roster through the season, and they still had to compete with topnotch teams in their league.  Some of the teams they had to compete with, like the Yankees, spent up to four times (4x) as much as they did on their “inventory” of ball players (i.e. “products” in baseball).   The A’s turned away from traditional thinking on how to allocate their budget to field a team, which meant relying on the gut feel of managers and buying the highest priced players.  Instead, they started to rely on “Sabermetrics”, the use of statistical analysis to determine the most cost-efficient baseball players based on measure of in-game activity/history.  Hence, based on mathematical models, the A’s figured out how to best optimize the team at every position on the field.  The result was that Oakland won 103 games in 2002, made it to the playoffs, and tied with the Yankees for most wins that season. Again, Yankees spent more than three times (3x) of what Oakland paid for its team, in the same year.

 
Coming back to the manufacturing world, in the same manner that Sabermetrics can help optimize the baseball players on a team, Multi Echelon Inventory Optimization (MEIO) can optimize your inventory that is deployed throughout your supply chain, in order to achieve target customer service levels, and maximize profit.  There are obvious parallels in taking the Moneyball philosophy to the optimization of inventories.  Instead of the General Manager in baseball using statistics to determine the best players to have on a baseball team, the Supply Chain Manager can use statistics and mathematical models in a MEIO system in order come up with the highest profitable scenarios.  By examining these scenarios, the Supply Chain Manager can decide how to right-size the inventory levels at different locations, and achieve targeted customer service levels, at the highest margins.


Of course, instead of baseball metrics (e.g. RBI’s, on base%, ERA, salary), there are statistical supply chain metrics (e.g. Demand variability, supply variability, BOM, Inventory value, etc.) that can be used to objectively calculate the value of each unit of inventory that you plan to place at a given “position” in your supply chain (e.g. Raw Materials, WIP, Finished Goods, etc.).  This would make it possible to optimize inventory deployment for meeting certain customer service objectives, and squeeze the most profit out of your supply chain, while not exceeding the budget allocated for working capital. 

 
The Oakland A’s are back in the playoffs again this year, with a budget that is one-third of the Bronx Bombers.  Not surprisingly, the use of statistics (i.e. the right system) is helping them get the most out of their small budget.  


Adexa has the equivalent of Moneyball’s Sabermetrics for your Supply Chain, it’s called the Inventory Optimizer to ensure each dollar of inventory is spent in the best possible way.

 

About the Author:  Bill Green is the Vice President of Solutions at Adexa, for more information about him please visit William Green profile link.    

Topics: Multi Echelon Inventory Optimization, Supply Chain Planning, Inventory Planning, MEIO, Inventory Management System, Manufacturing Software, Inventory Optimization, Inventory

Reducing Supply Chain Risk With Better Inventory Planning

Posted by kameron hadavi on Tue, May 10, 2011

Supply Chain Riak ManagementIn our last blog article, we talked about how today’s advanced planning technology can help with managing risk in a supply chain (read: Use Advanced Planning To Manage Supply Chain Risk). More importantly, we talked about how uncertainty (i.e. risk) in the supply chain, most often, leads to imbalances in the inventory levels. The following table was used to show how common supply chain issues lead to either too much, or too little, inventory at different points in the supply chain.   

Inventory Planning Issues

The good news is that many of the most frequent risks, and their impact on the inventory levels, are quantifiable.  For example, most companies have a good idea as how reliable major suppliers are, how often certain machines breakdown, or how accurate are their demand planning & forecasts. Furthermore, the negative effects that indirectly  propagate to other parts of the supply chain can also be considered.  For example in Japan, many of the suppliers who were not directly damaged by the recent earthquake, still felt the ripple effects of difficulties in procurement of raw material, shipping Finished Goods, and other logistical problems.  These too, can all be calculated with a proper supply chain inventory model.

Let’s talk about how supply chain planning technology can help.  Since risk and its effects on inventories can be measured then wouldn’t it be logical to manage supply chain risk from within your Inventory Planning system? In fact, today’s advanced Multi-Echelon Inventory Optimization (MEIO) systems are intelligent enough to be used for supply chain risk management.   Forecast streams, incremental costs, revenue factors, service impact, etc. can all be dynamically modeled in a MEIO system.  Supply chain risk scenarios can be simulated and their effects on inventory levels, profit margins, and customers can be closely examined.   Such a technology can make it a lot easier to decide whether it would be worth to operate at a higher cost structure (for example, by introducing alternate suppliers, or increasing buffer inventories), or consider other options to mitigate risk. In some cases, you may even realize that it would be too expensive to greatly reduce certain risk factors.  That is your choice, but as long as you can fully and systematically assess the consequences.

An MEIO system with supply chain risk management capabilities would be most useful in assessing the more frequent risks, causing the infamous inventory seesaw effects, rather than risks that may occur twice per century—such as Japan’s recent earthquake. Take Apple for example, which was in middle of iPad2’s launch, as the disaster occurred.  According to CNBC, some of the components of this device are built only in more advanced manufacturing countries, such as its unusually thin battery.  Chances are that Apple will not dramatically change this supply strategy due to a similar risk in the near future—even as it delayed iPad2’s launch date in Japan by two months, and the wait time for all online orders increased to 4-5weeks.  However, you can be sure that Apple has assessed many alternate supply strategies based on risks of much higher probability.      

Risk assessment can never be too accurate.  A Multi-Echelon Inventory Optimization system can be your best tool in simulating, assessing, and mitigating risk factors, and their full impact on your supply chain.   Feel free to use the comments section to tell us what tools you are currently using to manage risk in your supply chain.

For more information about MEIO, use the following links:

Download this ePaper: Demystifying Multi-Echelon Inventory Optimization

Youtube video: Inventroy Planning Defined As Part Of S&OP

 

Kameron HadaviAbout the Author:  Kameron Hadavi is the Vice President of Marketing & Alliances at Adexa, for more information about him please click here.

Topics: Multi Echelon Inventory Optimization, Supply Chain Planning, Inventory Planning, Enterprise Risk Management, Risk Planning

Use Advanced Planning To Manage Supply Chain Risk

Posted by Cyrus Hadavi on Thu, May 05, 2011

Supply Chain Risk ManagementThe biggest risk in any supply chain is having either too much inventory, or too little, at different points in your supply network. Too much of it leads to additional cost, as well as waste of capacity and space for products that are not selling. On the other hand, not enough inventories would obviously lead to less revenue, and in many instances loss of valuable market share.  After 3 years, GM is most likely to reclaim the title of the world’s largest automaker from Toyota, the father of best supply chain practices in the industry--due to the Japan’s earthquake’s devastating effect on its production and inventory levels. Could it happen to you? You bet!

Some may argue that there are many more risks other than the two specified above.  Our experience shows that all the other factors lead either to availability of inventory, or lack of it.  Consider the following scenarios:

Inventory Planning Issues

As you can see, every one of the above issues can create a risk that would ultimately lead to either too much, or too little, inventories at different points of the supply chain. So, you should consider adjusting inventories based on what risk level is best for you. Conversely, each potential risk would have an impact on availability of inventory. The amount of impact can be estimated by its relative importance. For example, a delay from a key supplier of Boeing, for a critical part, can cause months of delay in delivery of the Dreamliner—this is a much bigger risk factor than bad weather forecasts in some parts of Asia, during the monsoon season.

For each one of the potential issues listed above there is empirical data as to how often it happens. Most companies keep track of their supplier performance and supply chain issues with respect to delivery and quality. Based on this data, you can determine what the financial consequences of such events would be using advanced planning technologies that are now available to you. The use of this technology allows a more holistic approach, taking into account the entire supply chain’s risk rather than pockets of exposure, such as the supply process, design issues, forecasting errors, or manufacturing glitches.

An unfortunate disaster, such as the recent earthquake in Japan, can cause many supply chain problems for a myriad of companies.  By simulating an event such as this in a supply chain risk management system, you can estimate the potential loss as well as what it would have taken to avoid such a loss. If the cost of avoiding such a loss, which happens, say, once every 50 years does not justify it, then a number of steps can be taken to mitigate risk rather than building just-in-case inventories. For example, many automotive companies could have a standby supplier at a slightly higher cost, which can step in and mitigate the risk of supply disruption.  Thus, the higher cost structure would be justified by removing the risk of halting the entire supply chain, when frequent risk factors materialize into supply problems.

In general, risk and cost have an inverse relationship; the higher the cost, the lower the risk, and vice versa. The idea is to know where the trade off is and at what cost the enterprise is willing to mitigate certain risk potentials. Of course, this does not mean that every time you increase the cost, you are necessarily lowering risk. 

In summary, use advanced supply chain planning technology for a speedy answer on when to take a risk, and when not to, based on objective financial consequences. All it takes is a holistic process to risk assessment, and the right planning system.  The technology is ready. Are you?

 

Cyrus HadaviDr. K. Cyrus Hadavi is the president and CEO of Adexa, for more information about the author please click here.

Topics: Multi Echelon Inventory Optimization, Supply Chain Planning, Inventory Planning, Enterprise Risk Management, Risk Planning

Not Your Father’s Inventory Management System

Posted by Cyrus Hadavi on Fri, Apr 30, 2010

Inventory Management SoftwareWhen it comes to an Inventory Management system, we have moved to a whole new level of solutions called Multi-Echelon Inventory Optimization systems (see previous posting on Supply Chain Planning Blog).  This technology brought about a big change to the all-critical inventory planning function.  To that end, it has evolved quickly like anything else in technology today. So in this posting, I want to touch on some of the major differences between the MEIO solutions that were initially introduced into the market, and the ones that are available today.
 
Operations research and mathematical programming techniques are great at finding answers but fail to explain why.  This is like your boss telling you what to do without telling you why you are doing it, what the consequences are, and how the decision was arrived at.  As wise as your boss might be, he may fail to see all the different angles, and his "good" decisions are only relative to what he is trying to optimize.  For example, your boss may ask you to increase production of XYZ Widgets since the demand is high.  In his mind he is meeting the customer service goals, increasing revenue, and keeping the production line fully utilized.  So what's wrong with that?  He is optimizing for all of the above criteria, except that XYZ is not a high-margin product.  In fact based on competitive pricing, it is losing money in certain regions, meaning that the more you produce the more you lose!  So by doing this, not only he's hurting the profit levels, but also taking away opportunity to make and sell other high-margin products.  Another simple example, a new line of product is launched and you are wondering how many should be made based on current market demand?  The strategy is to make as many as possible based on supply capacity, in order to capture market share. However, by selling the new line you are cannibalizing the sales of the old inventory-- wrong timing and inventory policy, costing you millions!
 
This process has some deficiencies:
 
1- How do we know that the boss has looked at every criterion that is relevant?
2- What are the alternatives and consequences that may lead to better results for all, rather than a few.
3- Unless you know why a decision is made how can you justify it, and not put the company at risk?
 
First generation MEIO systems were kind of like your boss. They would just say what to do without telling you why you are doing it and what the repercussions are.  Many of Today's MEIO systems have the capability to go much further to explain the results, allow "what-if" analysis, show you alternatives, and most importantly tradeoffs-all at your finger tips, in real-time!
 
When designing an inventory strategy, transparency is needed to evaluate the different alternatives and to examine the impact of the decisions on your enterprise, as a whole.  For every gain that is expected, there might be a sacrifice of other products, as well as customer delivery performance tradeoffs.  The new MEIO systems are no longer that "black-box" that tells you here are your two choices-take it or leave it.  Just like a brilliant analyst, your MEIO system should tell you what happens when you increase production of one line vs. another, show why you need to make more of this and less of that, and explain how you can set your inventory targets to make the best of both customer service levels and reduce cost, at the same time.  But more importantly, it should walk you through your decision scenarios and its financial consequences.  Now this does not sound like an inventory planning system that our father's used...does it?  Don't even get me started on spreadsheet-based systems.    
 
By the way, I am very interested to get some feedback on what you are using in your enterprise for Inventory Planning, today?  And how it's working for you?  So feel free to comment on this posting and I am sure others will share too.
 
If you are interested to follow up on in this topic, there is an informative ePaper called Demystifying MEIO that I highly recommend, at: http://web.adexa.com/multi-echelon-inventory-planning-epaper/ .  Feel free to click and read it at anytime.

 

Cyrus HadaviDr. K. Cyrus Hadavi is the president and CEO of Adexa, for more information about the author please click here.  

 

 

For more information about different types of Supply Chain Planning systems visit: Demand Planning, Inventory Planning, or Sales and Operations Planning.

Topics: Multi Echelon Inventory Optimization, Inventory Planning, MEIO, Inventory Management Software

Inventory Planning | What Does It Mean To Optimize Inventory?

Posted by Bill Green on Thu, Apr 22, 2010

Inventory Optimization

Many companies say that they want to Optimize Inventory, but they often have different things in mind when they say it. 

 

Of course, they are all looking to make better use of the inventory on-hand, and they all have the goal of keeping customer service high and inventory low.  However, what makes them different is that each company may have a dissimilar root cause as to why they are not doing better with it.

 Inventory Planning

There are four main areas of supply chain planning to focus on when trying to get more from your inventory investment.  From top to bottom, and with different time-horizons, each one is critical to get the whole picture right, so it’s important to target them individually:

 

1) Reduce forecast error with better Demand Planning

2) Establish better inventory target levels with Multi-Echelon Inventory Optimization (MEIO)

3) Further synchronize supply flow with better Sales & Operations Planning

4) Improve daily Inventory Management

 

Reducing Forecast Error

The two key factors that will impact the amount of inventory that is required in a supply chain are lead-times and demand uncertainty.  Although, forecasts will always be wrong, there is a great deal that can be done to increase their accuracy with improvements in process and technology.  Remember, you have to do everything possible to be less wrong.  Forecasts and “consensus demand” (i.e. aggregation and agreement on one forecast number, by all departments) are also used to determine forecast error.  So, if a company does not have a strong process in place to facilitate collaboration, they will not be able to do well in any of the other areas. 

 

Demand Planning is a critical component of inventory management.  We have a new ePaper on this topic entitled: Planning Demand for Profit Driven Supply Chains.  Feel free to download it by clicking on the title.

 

Multi Echelon Inventory Optimization

The amount of inventory buffering should increase along with the value of a product, the amount of uncertainty in demand relative to the sales volume, and a company’s response time to deal with supply chain surprises. 

 

Where to place inventory can be very difficult to figure out in an end-to-end supply chain with many products.  There are many ways to rebalance how inventory budgets are allocated, inventory pooling and production postponement strategies can be complex and hard to execute, as planned.  A Multi-echelon Inventory Optimization (MEIO) system will enable a company to consider all of these in deciding where in the supply chain and how much inventory to have.  If your company is using a manual system, and pretty much guessing at how many days of coverage to have for each product, or does not have a good process in place to calculate statistical safety stock values and its “What-if” impact on customer service, then you should be looking into how an MEIO system can help your supply chain. 

 

If you would like more information on Inventory Managment and its "Optimization", I recommend reading this paper: Demystifying MEIO.

 

Sales and Operations Planning

As part of the S&OP process a company needs to determine how to meet the inventory demand that comes from buffer stocks, forecasted demand, and backlog.  Or it may be that capacity or material constraints, or other operating efficiency concerns, drive a company to purchase or build inventory ahead of when it’s actually needed.  Regardless, the supply planning process that feeds a consensus S&OP plan is the place that these decisions are made.  If a company does not have a good S&OP process in place, then it will not be able to make good decisions around inventory.  Furthermore, if the S&OP system in place does not consider the effects of finite capacity, materials, and operating constraints, then control over inventory levels will not be achieved.

For more information about S&OP process, I suggest viewing this recorded webcast: S&OP 101: For all manufacturing executives

 

Inventory Management

Even with a perfect plan, a company cannot keep inventory low and customer service high unless they can execute on moving inventory through the supply chain to meet customer orders.  Better Inventory Management will give improved visibility of inventory through the supply chain and create the orders to move the inventory when required.  Inventory Management gets the target levels from the MEIO system, and then executes as orders and forecasts are received.  If a company does not have good visibility into inventory, forecasts, and orders then an improved Inventory Management system will surely help. 

 

A last thought, there are many areas of supply chain planning that can have an impact on reducing inventory and improving customer service.  Typically a company will focus on Demand Planning first, and then Inventory Management, while putting in place simple ways to set inventory target levels.  They would then focus on better inventory targets with MEIO systems and better supply side S&OP planning.  Each company is different, and it is important to address each area based on your needs.

 

About the Author:  Bill Green is the Vice President of Solutions at Adexa, for more information about him please visit his profile link.     

 

For more information about different types of Supply Chain Planning systems visit: Demand Planning, Inventory Planning, or Sales and Operations Planning.

 

Topics: Multi Echelon Inventory Optimization, Supply Chain Planning, Inventory Planning, Inventory Management, Inventory Optimization

Multi Echelon Inventory Planning Demystified!

Posted by Cyrus Hadavi on Fri, Apr 16, 2010
 

Inventory PlanningInventory is a very interesting phenomenon! You never know exactly how much you need until you actually need it or you know you have excess until it is too late! The major problem, or should I say opportunity, is that inventory is a function of both time and randomness. Randomness has to do with your competitors pricing, quality, weather, economy, acts of God, contagious disease, strikes, etc.  All of these factors and many others have an impact on your demand. For example Toyota's quality problems lead to increase in demand for other auto makers, warm weather increases demand on beer, N1H1 outbreak increased the demand for certain type of medication.

So you ask yourself, how often do we have such events and should I care? The answer is Yes! Because the weather maybe more predictable than your competitor and your customers' forecast!  In other words, it is very hard to tell how your competitors are going to change the game and take market share from you, or how your customers can change the demand based on how they feel and market conditions. So it is a constant game of balance between Supply and Demand. If you play the game long enough then you should become an expert.   Just like chess you can develop strategies to make the right move and be prepared no matter what your competitor does or what the changes in demand are. Being prepared is what the science of inventory planning is all about. We refer to this as Inventory Optimization. It allows you to decide how much inventory is enough, where and when. The two factors that you need to be concerned about are Cost and Service Level. On one hand you can have every possible item available in Finished Goods which is inconceivable. Or keep no inventory, another unlikely scenario. People talk about "zero" inventory; I am not sure what this means?  Does it imply that every time I want to buy a note book, somebody needs to go out and chop a small tree down and put it through the paper mill?  But one thing is for sure, your optimized inventory level is some place between those two points.

Inventory planners, like any other type of planners, need to have their slide rule (some of you may not be as old as me to know what these are!) or their calculators, to figure out where and when they should keep inventory up and down the supply chain. This is a very complex problem even without the randomness that we talked about. There are many different products each with their own Bill-of-Material and different production routings and capacity requirements. Shared resources and inventory buffers, as well as raw materials, are needed to build and store intermediate products at different stages of production. Very often subcontractors, distribution centers, consignment locations, and hubs are also part of the equation. I think you all agree that spreadsheets are too simple and rigid to do the job even-though it is of the most widespread tools. Now let's add randomness and seasonality to this. Are we having fun or what?

Here is the good news, an MEIO (Multi echelon Inventory Optimization) system is designed to be the tool that inventory planners need to deal with exactly the kind of problems that we just talked about. It has the capability to model different layers of supply chain, take randomness into account at every stage, look at the cost and service level requirements, and then come up with how much of what needs to be kept at every critical point of the supply chain. And if you don't like what it proposes, you can change the parameters and run it again and it will give you other alternatives so that you can make a wise decision. Think of it like what a structural engineer does when she designs a high-rise. The load at every floor can be different, the structure may have to be resistant to winds of up to 60 miles an hour, and there might be earthquake and fire hazards to consider.  Given all these potential "random" events the structure needs to deliver certain level of safety (i.e. service level) to its residents. The optimization programs that Structural engineers use resembles very much the MEIO system that we described above. It shows you how to build a supply chain that can be resistant to changes at lowest cost. The only difference is that in our building analogy you do it once, hoping that it will last forever.  However, using an MEIO system, you have the opportunity to re-design your inventory plan on weekly or monthly basis so that your supply chain can withstand new conditions. That is the beauty of a system which allows you to have enough flexibility to change with your demand, business conditions, management objectives, and moves of your competitors!

Multi Echelon Inventory Optimization systems are fairly new in the market but picking up a lot of momentum by helping to solve a common and complex supply chain problem--as Demand Planning systems did starting a decade ago.  The right MEIO solution can make your supply chain a lot more efficient, save a bunch of money, and most important of all make your customers very happy.

We have a comperhensive ePaper on this topic, just click on: Demystifying MEIO.

 

Cyrus HadaviDr. K. Cyrus Hadavi is the president and CEO of Adexa, for more information about the author please click here.  

 

 

For more information about different types of Supply Chain Planning systems visit: Demand Planning, Inventory Planning, or Sales and Operations Planning.

Topics: Multi Echelon Inventory Optimization, Demand Planning, Inventory Planning, MEIO, Inventory Management System, Finished Goods, Inventory Optimization

Supply Chain Inventory: Good or Evil?

Posted by Cyrus Hadavi on Mon, Mar 15, 2010
Inventory Planning What do all manufacturing companies, regardless of industry, have in common? Inventory! It's the lifeline of every company that sells goods. How can it be evil?

Inventory to a supply chain is like water to people. Too much of it would drown you. Too little makes you dysfunctional. So how much is enough? Just as in people, the real question is how fast are you running? Hence, the amount of inventory you need has to do with how fast you can move it. In addition to knowing how much is needed, you also need to know when and where you need the inventory. The fact is that, just like energy, inventory does not get destroyed but transforms from one type to another. And the decision is yours as when you want to transform it from Raw inventory to Work-in-Progress, to Finished-goods; or to decide when to bring it to your site, or move it to another location. These are tough decisions to make, with potentially big impacts on your supply chain. You see, inventory planning is based on a very large number of potential configurations of product types, locations, and timing based on demand and supply factors. So making good decisions about what to do with your inventory can be very complicated! But wait I am not done yet! On top of all these factors, you also have to worry about Acts-of-God, Mother-Nature and even "luck". Yes, luck! In our customer base, we have a major brewery with demand that swings heavily based on weather during the holiday weekends. We also know of a major food processing company in South Africa that is already planning for spikes in demand for "chicken" during the 2010 World Cup. Other examples, SARS in Asia caused shortages of high-tech semiconductor components, and H1N1 Vaccine was in serious shortage, just recently. .

So back to the question: How much, where and when? Most supply chains have many different layers of inventory or echelons. Examples are raw material, buffers in between sites, WIP, finished-goods, distribution centers, consignment locations and more. At any given time, for each layer of the supply chain, decisions need to be made regarding how much, and what type of inventory is needed to maximize your service levels, and minimize your cost. A simple question like that for even a few products can be complex, for hundreds or thousands of products can be mind-boggling, especially when you bring in chance and probability.

OK, here is the good news: MEIO. Multi Echelon Inventory Optimization is designed to do precisely what we have talked about, i.e. minimize your cost of reaching targeted service levels. MEIO deals with the elements of chance and probability at every layer of the supply chain and keeps a tight-eye on cost factors. It knows that Raw material costs a lot less than Finished-goods and has the potential to transform to what the market needs. In other words, MEIO takes into account postponement strategies and the potential to deliver a certain level of service. As the user specifies higher service levels, the system shows the potential increases in cost and recommends what to get, and where to keep it, in order to protect against surprises. It is really cool. And the good thing is that it will save you a significant amount of money in a short period of time.

So you owe it to your company to ask: Do we have enough of what it takes to deliver what we need? Are we losing money for keeping too much or losing opportunities, and market share, because we don't have enough? If you know the answer to these questions, do nothing and you are in great shape. If not, take a look at what MEIO can do for your company.

Inventory is GOOD only if there is the right amount, in the right place, at the right time! MEIO shows you what the "right" is for you.

Cyrus HadaviDr. K. Cyrus Hadavi is the president and CEO of Adexa, for more information about the author please click here.



For more information about different types of Supply Chain Planning systems visit: Demand Planning, Inventory Planning, or Sales and Operations Planning.


Topics: Multi Echelon Inventory Optimization, Demand Planning, Inventory Planning, MEIO, WIP, Finished Goods, Inventory Optimization