Inventory Optimization with SAP IBP

What is Inventory Planning

Inventory Planning is an activity which organizations continuously aim to optimize. The main challenges Inventory Planning Process faces are inconsistent tracking efficiency, changing demand, supply chain complexity, increasing competition, inventory holding and related costs, overstocking, understocking, lack of expertise and many more.?

It’s a lubricant to keep the supply chain working smoothly in times of uncertainty and risk, while making sure customers are served on time.

Consequences of poor Inventory Planning

1. Too Much Inventory - Finance Department
2. Not enough Inventory - Customers
3. Right Inventory, Wrong Place or Wrong time - Supply Chain Planners

Traditional Inventory Planning & it's Drawbacks

A Traditional Inventory Planning model has many drawbacks and is usually not the right fit for tackling real world problems.

A Traditional Inventory Planning is:

? Deterministic ? Isolated - Single stage ? Static and offline analysis ? Multiple, limited Data Model ? Desktop Scale

Location-centric Inventory Planning oversimplifies the situation and leads to:

1. Over buffers of Inventory
2. Bull-whip effect
3. Limitation to determine any postponement strategy
4. Not being able to handle BOM, Lot sizes,
5. Other supply chain complexities

SAP IBP for Inventory Overview

What are the benefits of SAP IBP Inventory Optimization

1. Improved Customer Service Levels.
2. Standardize and simplify the inventory target-setting process.
3. Maximize the efficiency of inventory and working capital.

SAP IBP Inventory Optimization - Key Differentiator?

Key enabler 1: End to End Supply Chain Planning in one Tool

Key enabler 2: Multi-stage Inventory Optimization

• IBP for inventory optimization allows for coordinated planning which eliminates inventory over-buffering while meeting service level objectives.
• Optimization of internal service levels leads to a?significant inventory reduction.
• Avoid bull whip effect by propagating demand variability to upstream stages of the network.??
• Streamlined & centralized inventory planning.

SAP IBP Inventory Planning Process

SAP IBP Inventory Planning – Inputs

SAP IBP Inventory Planning – Outputs

?Key Outputs Obtained as a result of?Inventory Planning & Optimization:

1. Average Service Level: Weighted average of customer and internal service levels.
2. Propagated Demand Mean: The Demand Propagated from the customer facing nodes to the Upstream nodes in the Supply chain.
3. Recommended Safety Stock: Stock Level Recommended by the Optimizer to capture variability in demand, supply and Service levels.
4. Demand Variability Safety Stock: Component of Safety stock for the Variability in Demand.
5. Supply Variability Safety Stock: Component of Safety stock considering Variability in Supply.
6. Cycle Stock Target: Propagated demand mean over the length of PBR.
7. On Hand Stock(Target): Stock on Hand – Safety Stock + Cycle stock.
8. Target Inventory Position: Propagated demand mean + safety stock over the length of lead time and PBR.
9. Reorder Point: Propagated demand mean over length of lead time and lead time variability.?

SAP IBP for Inventory Optimization - The Benefits