i2 U Intelligent Supply Chain Management Course Module Seven: Inventory Planning

© 2001 i2 Technologies Inc CONFIDENTIAL 2 Supply Chain Management Key Processes Sales & Operations Planning Demand Planning Inventory Planning Supplier Scheduling Production Scheduling Inventory Deployment Transportation Scheduling Demand Fulfillment Supply Chain Execution Monitoring Strategic Supply Chain Planning Master Supply Planning Procurement ProductionDistribution Transportation Impact of decisions _ + Number of decisions + _ Specificities by industries Length of Planning horizon Fully Integrated top-down directions Fully Integrated bottom-up feed back Reaction to changing supply conditions

© 2001 i2 Technologies Inc CONFIDENTIAL 3 After Completing This Module, You are Expected to: u Understand the key business objectives of the Inventory Planning process u Understand the logic of a safety stock calculation u Understand the specifics of service parts planning u Identify Inventory Planning key enablers and their resulting business value u Identify Inventory Planning excellence criteria

© 2001 i2 Technologies Inc CONFIDENTIAL 4 Inventory Planning Process Positioning hours days weeks months year + buy make move sell store operational tacticalstrategic scheduling

© 2001 i2 Technologies Inc CONFIDENTIAL 5 u Empirical calculation of safety stocks, generating either excess inventories or customer service issues u Safety stock recalculation periodicity too infrequent u Lack of consideration of risks of inventory obsolescence and price erosion when defining inventory targets u Lack of consideration of phase in and phase out of products Typical Deficiencies of the Inventory Planning Process

© 2001 i2 Technologies Inc CONFIDENTIAL 6 ‘Scientific’ Calculation of Safety Stocks u Safety Stock calculation based on : – demand variability (forecast accuracy) – supply variability (schedule adherence) – desired level of customer service

Inventory Planning Improvement is Generally a Low Hanging Fruit

© 2001 i2 Technologies Inc CONFIDENTIAL Inventory Carrying Costs ServiceLevelServiceLevel With the current level of Demand and Supply variability, a targeted increase of 4% in on- time delivery would mean more than doubling the inventory investment Inventory Planning: Exchange Curve Analysis

© 2001 i2 Technologies Inc CONFIDENTIAL 9 Inventory Planning Process Key Enablers and Related Business Benefits Safety stock levels calculated as a function of supply chain uncertainties and customer service objectives Real time simulations capabilities on exchange curves  Customer service  Inventory turns

© 2001 i2 Technologies Inc CONFIDENTIAL 10 Roadblocks to Remove to Implement an Optimized Inventory Planning Process u Lack of cleanliness of historical data u Lack of availability of historical data

© 2001 i2 Technologies Inc CONFIDENTIAL 11 Service Part Planning Inventory Planning for Spare and Service parts

© 2001 i2 Technologies Inc CONFIDENTIAL 12 Industries Where Service Parts are a Critical Element of Business Performance u Hardware + PC manufacturing u Network equipment u Aerospace & Defense u Automotive + 1st Tier suppliers u Industrial products / heavy equipment u Medical equipment

© 2001 i2 Technologies Inc CONFIDENTIAL 13 Service Parts Planning is Influenced by Specific Factors u Defined Market Size = Installed Base u Service Contract Obligations (penalties) u Strong impact on customer retention u Returns & Repairs Chain (Reverse logistics), which influences parts availability u Life Cycle Factors u Items with low demand / highly erratic demand

© 2001 i2 Technologies Inc CONFIDENTIAL 14 Parameters Considered to Calculate the Safety Stock Policy for Service Parts u Desired service level u Usage u Demand u Forecast deviation u Carrying costs u Returns u Production Lead Time u Units in repair u Substitute and superceded parts u Part effect on uptime u Random spike demand analysis

© 2001 i2 Technologies Inc CONFIDENTIAL 15 Inventory Planning Excellence Criteria u Safety stocks levels are calculated as a function of the desired customer service level (off the shelf product availability rate), as well as demand and supply variability, by using an adequate algorithm u Reporting capabilities enable the planner to identify major deviations between the previous and the new safety stock value calculated by the system u Input data quality is tightly monitored. Root causes for poor quality are analyzed and lead to adequate corrective actions u The planner has the ability to modify a safety stock value before it is used to regenerate a master plan u Safety stock calculation frequency supports business dynamics u Real time what-if simulations (using memory resident calculation for maximum speed) are extensively used in order to evaluate the financial impact of modified customer service objectives on inventory carrying costs (exchange curve analysis)