Supply chain optimization

In today's fast-changing business environment, companies must constantly adapt their supply chain policies. E-business, advanced manufacturing and shorter product lives increase the pressure on companies to optimize their supply chains.

The Business Optimization group focuses its supply chain activities on two main areas.

The Dynamic Inventory Optimization Solution (DIOS) is an IBM software tool that can be used to assess inventory reduction opportunities by determining the optimal inventory at the SKU level. DIOS can consider many factors, such as service levels, demand variation, supplier lead-times, lot sizes and minimum order quanitites, as well as minimum and maximum stock levels, and can be used to identify opportunities for quick hits to reduce inventory or improve service levels. DIOS uses a unique combination of scientific approaches to manage inventory at the strategic, tactical and operational levels, while at the same time predicting service levels. It applies patented algorithms and classification schemes to calculate optimal safety stock levels, reorder points, and batch sizes for each product — even in cases with extreme demand fluctuations. The solution is a service to clients that involves using existing data from a client's current system and identifying where inventory is too high or too low. It then recommends detailed stocking level adjustments and inventory policies on SKU level. DIOS comes with a certified SAP XI Interface for exchanging data with SAP R/3.

DIOS optimization goals

1. Assess optimal batch size for each SKU,
2. Determine optimal safety stock for each SKU,
3. Define optimal classification of SKUs,
4. Establish optimal replenishment policies for each SKU class,
5. Reduce excess inventories,
6. Meet service level expectations.

DIOS value proposition

1. Increase service levels,
2. Reduce inventory ranges by 30%-50% (savings potential),
3. Allow users to develop specific item-by-item plans to reduce overall inventories,
4. Create accurate demand forecasts on SKU level,
5. Simulate inventory dynamics,
6. Identify items for which inventory levels must be increased, with a long-term effect of reducing stock-outs and expedites,
7. Enable the addition of customer specific modules with little effort (e.g. bundling of articles, order propose generation, multiple package sizes),
8. Explore opportunities for lean manufacturing & warehouse site positioning follow-on projects.

Forecasting with IBM Dynamic Inventory Optimization Solution (DIOS)

An elaborate forecasting engine is used to predict customer demand. Its key features are flexible data cleansing, profile detection, broad selection of forecast algorithms, automatic choice and adjustment of the best-fitting forecasting algorithm, and consideration of external factors like sales promotions, weather data, or special calendar dates.

A crucial element in forecasting is the choice and parameterization of the applied forecast algorithm. DIOS automatically determines the best set of parameters for each forecasting algorithm based on history and then selects the best fitting forecasting algorithm from a set of more than a dozen algorithms. In addition to the normal forecast, also called baseline forecast, it considers effects of promotions, price reductions, weather or special calendar days. These external effects can be detected automatically from historical data, they can be given externally, or they can de determined a combination of automatic and manual detection.

Moreover, DIOS employs a patented process that combines forecasting and replenishment. Thereby, the best time aggregation of the historical demands is determined and applied such that the forecast and related optimal order quantity share the same time horizon, avoiding problems that can result from the misalignment of forecast interval and cycle time.