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Solution Brief: Inventory Optimization

SimFlex is a suite of value chain planning tools enabling companies to design, test and deploy robust and lean solutions supporting strategic, and recurring operational business decisions. SimFlex solutions provide significant cost savings and increased sales through optimal value chain design, efficient asset utilization, improved service levels and greater agility.


Inventory Optimization#

Excess or insufficient inventory is a result of the uncertainty which is inherent in today's dynamic business environment. Companies are under constant pressure to squeeze costs and improve service levels, in part, through reduced inventories and improved fill-rates. SimFlex Inventory Optimization solution considers customer demand variability and lead-time fluctuations to define the optimal safety stock levels for each product and component at each site in the supply hain. As a result, customer service levels can be increased, while reducing the amount of working capital tied up in supply chain inventories.

Solution Capabilities#

Multi-Echelon and Multi-Period Inventory Optimization:

Incorporating a holistic view of the value chain is essential for inventory optimization. When setting optimal safety stock targets for each SKU at each location, SimFlex considers the entire value chain, from supply to production, through to distribution to end customers. Since actual end-customer demand is often both seasonal and fluctuating, SimFlex can optimize separately for different time periods, such as weeks, months or quarters. Combining multiechelon and multi-period planning with the ability to consider each SKU at each location, produces tangible targets for operating the value chain at lowest inventory levels.

Incorporating Uncertainty:

Most planning activities are performed with deterministic, or fixed data, related to demand and distribution / production / supply lead times. For inventory optimization this is not enough. Inventories should be seen as buffers against uncertainty, and in a deterministic environment, where everything is fixed and known, there would be no need for any.


Each input to SimFlex can be accompanied by a random 'error factor'. Alternatively, SimFlex can also use actual historical customer orders as a basis for the uncertainty. SimFlex inventory optimization brings companies closer to the 'efficient frontier', defined as lowest possible inventory value that guarantees a desired customer service level, considering the uncertainty in the value chain.

SimFlex Differentiation#

Inventory Optimization and Value Chain Strategy:

Inventory optimization can be done in isolation, or as part of a bigger value chain opportunity analysis with multiple objectives. Inventory optimization is one of several solution technologies included in SimFlex. When considering the optimal value chain for any particular company and product, inventory targets associated with a certain value chain are a key issue. However, a true end-to-end value chain assessment must consider many other elements such as the cost of manufacturing and distribution, capacity and customs duties to name a few. SimFlex provides the capability to integrate all these elements of the value chain into



a single model and combine this with optimal inventory targets for any potential value chain.

Integration with Enterprise Applications:

SimFlex data model is an integrated model with unified inputs and outputs. It enables both a 'top-down' and 'bottom-up' modeling approach, which allows the best approach to be taken for the planning problem at hand. SimFlex data exchange module enables rapid integration to a variety of data sources like ERP, data warehouses and spreadsheets. SimFlex solutions are also "Powered By SAP NetWeaver®" certified, which facilitates easy data exchange with SAP. Recurring data updates are automated through mapping schemes with the various sources. For manual updates, a variety of user-friendly options like filtering, table customization, multi-edit, graphical editing of values and copy/paste allow the users to easily manage and modify the data.

Benefits#

SimFlex Inventory Optimization enables companies to achieve best-in-class service levels with minimal inventories, given a product portfolio of thousands of SKUs with high market variability. Typical results have shown 15-50% reduction in on-hand inventory directly relating to reduction in working capital required and, customer service levels above 95%. Furthermore, SimFlex identifies the additional costs required to attain service levels of 97%, 98% and 99%. Entire value chain and related uncertainties are considered in determining the optimal inventory policies and stocking levels to meet customer service level targets. This brings the company closer to the 'efficient frontier', and improves key financial indicators of the company, most importantly the bottom line.




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