INVENTORY OPTIMIZATION WITH SAP IBP
SAP IBP is highly helpful for businesses to manage supply chain risk. It helps improve the efficiency of inventory investment. It sets the inventory targets by utilizing best-in-class multi-echelon inventory optimization. An improvement in the service levels has been
observed while using up to 30% of less investment in the buffer stock.
When we talk of SAP IBP, its selected features include the following-
Multi-stage inventory optimization
Use of less inventory to buffer more risk, with multi-stage optimization
Robust statistical models
There are proven algorithms that provide significant improvements over textbook calculations.
Embedded Analytics
Ability to visualize the supply chain network and quickly gain insight into the inventory.
Buffer Forecast Error and Demand Risk
Buffer against forecast error and other demand-side uncertainty.
Efficiently master supply uncertainty
Buffer supplies the uncertainty by taking into account late deliveries and other factors.
Management
Focus planners on problem materials and identifies opportunities for improving the root causes of inventory.
SAP IBP for inventory helps improve customer service levels while maximizing the efficiency of the inventory and working capital. Over the years, safety stock planning has evolved from isolated single-stage to multi-stage inventory optimization. In practice, it means moving from planning the safety stock at one individual location to optimizing the stock for an entire demand stream. The value is now in network optimization instead of planning at the individual warehouse.
As an integrated multi-stage inventory optimization solution, it enables seamless sales inventory and operation planning. It also provides network consensus safety stocks for supply planning. This sounds really wonderful, but in practicality, you need to take care of the following-
Supply chain synergy is important.
The main objective is to generate an optimal target inventory position driven by a target service level for a customer or a group at the lowest possible cost across the application chain. The target inventory position includes your safety and cycle stock to make up for the core on-hand and pipeline stock. Hence, it is calculated using a mixed integer programming optimization also. It supports multi-stage inventory calculation for complex supply chains. It determines the optimal internal service levels based on several parameters, including inventory holding cost, lead time and lot sizes, as well as the uncertainty data. There is no halfway you can go about it during the planning. You must have a complete holistic view of the supply chain because a stocking point in the network cannot determine how to implement its own policy.
It must adhere to the validated output of the run to ensure inventory harmony across all stages; otherwise, you can be at risk of carrying too much or too little stock. For inventory optimization to be effective, you must adopt synergy and bring about integration in the complete supply chain path.
Understand the scope of integration.
It is essential to focus on what is needed to realize inventory optimization’s benefits. A substantial benefit of the SAP IBP solution is its ability to build a sales inventory and optimization plan. As a business, you should decide on the type of integration you require and the benefit expected in the short-term vs long-term view.
Having been deeply involved from design through the build for- EIS, APO, and ECC automated integration projects. The solutions require a good deal of configuration, program mapping, generation and more, depending on the data type used in planning data area sources.
Quantification of the benefits of time-varying the safety stock
Often there is a common practice to apply the static rule in inventory parameter settings. The assumption exists because the location is near a specific distance from its source of supply. So you will, irrelevant of demand, replenish a full load of the product when replenishment is triggered. Alternatively, you will also assume you carry 30 days forward inventory cover irrelevant of a product being a repeater. We totally agree there is the element of generalization involved. However, the important point to note is that one size does not fill all. In almost all cases, it leads to higher than necessary inventory costs as well as the tendency for shortages, stock-outs and lost sales. Within the APO, the safety stock planning has rarely been as meticulous as it should be, and it could result from simplistic planning.
If you are still an APO user, it is likely that you are generating the stocks in the following manner-
- Using a day coverage method such as safety days supply. Or the time as your forward cover of the forecast demand.
- Or the combination of the above whether a static safety stock is used as a safe that is lower than your forward cover.
On the other hand, the focus of IBP for inventory optimization is ensuring that internal service levels are met at each location driven by your forecast. It should be within the constraints of cost, replenishment lead time, lot size and uncertainty of supply and demand. Its main aim is to achieve the right balance of products to achieve service level at that location. So in doing this, the safety stock must be time-varying due to the other hard constraints imposed.
Identifying the opportunities to improve the planner’s productivity
The teams must understand the process drivers through IBP for inventory that will drive the value. Apart from the foundation of optimizing time variety stocks, there are a lot of highlights that come as standard with IBP. This is especially when used in the context of inventory, which will eventually improve the planner’s productivity. Planners must also monitor their respective supply chains to ensure objectives are being met while holding each other accountable against the specific service level expectations in the complete supply chain. The SAP IBP dashboard lets the users select the charts so that the planners can interact conveniently. Due to its user-friendliness, you are able to simulate or execute inventory optimization for a given supply chain network. You can also review the results graphically. Excel views can be personalized and shared easily.
Have a clear understanding of the functionality available.
SAP IBP for inventory, in simple words, is a complete rewrite of the EIS process with the improvements made to leverage the performance benefits of HANA. That said, inventory optimization is growing in use but is not as widespread as one should expect. Its expertise is hard to find in comparison to SCM APO. It is delivered with the ability to run single-stage algorithm calculations and multi-stage using MIPO with added functionality to check the expected demand loss of the plan. It helps organizations improve on their current solution without going to a multi-stage optimization solution. Potentially it helps enable solutions where a fractal supply chain can adopt a different solution depending on complexity and cost saving.
From a business perspective, it is essential to manage the expectations in line with available functionality to determine what can easily be done and what is practical within different product categories. This needs careful planning from the outset. With each function and solution comes specific benefits, but before that, it is essential to understand your current performance and create the basis for comparison to be able to measure the impact of the solution.
When you plan to implement IBP solutions, there are technical and business challenges, so you need assistance from professionals dealing with SAP IBP. A strong business case quantifies the impact of optimized time-varying safety stocks throughout the supply chain and improves planner productivity on customer service levels. If you need assistance from an SAP IBP consultant, for implementation of sustainable supply chain management contact SCPLAN Consulting.
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