Inventory balancing & Optimization within SAP-ECC or APO

Did you ever think your company had a good supply chain set up, its Supply Chain processes were nicely implemented, planners were fully skilled and well trained, HOWEVER….

1-    You repetitively experience miss-positioning of inventory versus customer orders, representing a mismatch of stock and demand from a geographical perspective. Consequence being expediting, sometime delays and even worse, shortfalls.

2-    Despite you run best of breed APS, you keep on getting production requirements at source in the short term, even in urgent mode because of safety stock violation downstream, which forces you to go pushing productions and procurements.

3-    Your Supply Chain Network strategy wants you to locate stock close to customer to better fit the Customer tolerance time, within a given service level however demand being volatile (web, backorders…) you struggle matching demand and supply on each shipping location.

Though you have an overall positive stock balance!!

How can this be? Because DRP (distribution requirement planning) root concepts have not been designed to re balance stock positions. See the basic logic that is applied.

1-    At first DRP propagates requirement upstream (destination to source) to cover requirements with a replenishment plan. This is driven by master data that describe regular company sourcing rules, without any conditional logic. This creates dependant demands on the chosen sources.

2-    As a second phase a replenishment plan is calculated leading to a procurement and/or an MPS plan on the sources to cover the dependant demands.

3-    As a third phase, a Deployment step ensures fair share rules being applied when moving goods from factory to DC (source to destination), fulfilling the requirements generated at phase 1. In case of shortage or overstock special actions may be taken, from the distribution perspective.

Clearly the calculation sequence induces potential errors, where existing stock in a given location is not seen as available for other locations, unless this location sits in the path between source and destination. This case often happen when you manage overflow warehouses. Multi layer supply network often self generate such dead end path where goods get stuck in inventory without any demand consumming them.

Several solutions can fix this issue, bringing big improvement in Supply Chain efficiency with regards to stock utilization:

Solution: Do nothing! Let planners run do this manually. If the staffing is appropriate with acceptable number of sku per planner, Company performance is okay. However you must consider the expediting cost with the many people phoning, mailing, running, winging etc.. Really demotivating and pushing users out in Excel with uncontrolled processes (shadow IT).

Solution: Rocket science! In the last decade, APS solutions proposed inventory optimization to better cope with safety stock calculation to be multi-echelon based, and smart calculation of plans, so as to re balance distribution and production plan, aiming at more profitable planning results. This case suits well when the company hires PHD in SCM teams, nevertheless it is fairly far from normal planner skills. Model is highly sensitive to mistakes. Results are not explainable as they are mathematically calculated (often based on Simplex algorithm).

Surely, results are very good when the model is nicely attended and maintained.

Solution: Pragmatic and quick! Go balancing. Here the idea is to remain simple and pragmatic so that anyone can quickly grab the concept and introduce his own rules. In many case, calculating a feasible plan already means a lot of expediting, missed targets, going obsolescence etc.. Reaching the feasible state is already a tremendous achievement.

How does this work with Inventory Balancing proposition? 2 cases: before or after the MRP run.

1-    Before the MRP run. Inventory balancing analyses the projected stock positions in the company network, in order to determine a virtual re balancing plan between locations via transport propositions. When MRP runs just after balancing, only true requirements are propagated to the regular sources. What to do with the transport propositions generated earlier? Either convert them in transport order, or move the demand where the stock is. With Inventory balancing, you get a clear report of miss-positioned stocks

2-    Use Inventory balancing as a deployment tool to move stock from sources, toward requirements locations. In this case MRP is decoupled from Inventory Balancing. SAP-ECC does not propose such a deployment option, therefore this really makes a difference, and opens a lot of potential improvement in service level and inventory saving

The balancing determines dynamically each location role, like being a source when overstocking, whereas it calls for supplies when understocking.

Implementing this solution is a matter of couple days before it runs and provide already first results.

Last but not least, Implementing Inventory Balancing & Optimization allows you defining your own company rules which calculate what is an available to balance quantity and what is a Requirement to be balanced quantity, along with prioritization of sourcing like cost, distance, cover...

You wish to further understand this, feel free asking me or setting a webinar request on our site  https://dowap.eu/inventory-balancing/