1. The Oracle APS and Demantra Specialists Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 1 Strategic inventory levels to satisfy customer requirements Northern Cal OAUG Training Day January 21, 2009 Sridhar Hoskote Partner, Inspirage LLC

2. The Oracle APS and Demantra Specialists Agenda Introduction Business Challenges Supply Chain Need for System Support IO implementation Integrating IO with constrained ASCP Cutover process Results and Summary Q&A Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 2

3. The Oracle APS and Demantra Specialists Inspirage is recognized as a premier consulting firm specializing in Oracle Advanced Planning and Demantra Applications. Founded by former Oracle APS Product Development Senior Managers responsible for design and development of many APS applications Strategic partnership with Oracle product development in –Areas of new product design and development –Preferred partner for training other System Implementers Recognized as subject matter experts within the Oracle APS community –Numerous highly successful reference clients –Leadership role in OAUG special interest groups for Advanced Planning and Demantra –Contribute to knowledge sharing by presenting in forums such as OAUG and Oracle Open World conferences Copyright © Inspirage LLC, 2008. Private and confidential. All rights reserved Page 3

4. The Oracle APS and Demantra Specialists Inspirage Customers Copyright © Inspirage LLC, 2008. Private and confidential. All rights reserved Page 4

5. The Oracle APS and Demantra Specialists Copyright © Inspirage LLC, 2008. Private and confidential. All rights reserved Page 5 Inspirage provides the complete expertise of the integrated Oracle forecasting and supply planning solutions Demand Management, Stats Forecast, Multi-tier Collaboration Workflow, AF/DM, Chaining, Member Management Consume Forecast Constrained / Optimized Planning SO History DM ASCP GOP Schedule, Un-schedule orders Advanced Planning ERP Release orders Schedule orders Trading Partner Collaboration CP S&OP Monitor plans to actual, collaborate, and respond Distribution/ Service Parts Planning Collect Planning Data SNO Strategic Sourcing Detailed Scheduling PS IO Inventory Strategy

6. The Oracle APS and Demantra Specialists Introduction Source Photonics designs and manufactures wide variety of optoelectronic devices Broad product line of PON, Telecom, and Datacom transceivers One of the largest volume suppliers of non-VSCEL based transceivers in the world~ 4-6M per year of 1310nm and 1550nm transceivers Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 6

7. The Oracle APS and Demantra Specialists Oracle footprint 2006 2007 Summer 08 November 08 Oracle Execution products Constrained ASCP Inventory Optimization- Phase 1 Feb 09 Inventory Optimization- Phase 2 Global Order Promising/Pilot CP Implemented Oracle E business suite in late 2006 and early 2007 Implemented constrained ASCP in 2007 Inventory optimization with demand variability in Summer 08 Integration of IO and ASCP, supplier LT variability in November 09 GOP is slated for early 09 Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 7

8. The Oracle APS and Demantra Specialists Business Challenges Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 8

9. The Oracle APS and Demantra Specialists Business Challenges Customers Request Date Scheduled Ship Date 14 wks LT How much inventory do you need to satisfy request dates? Where do you keep those inventories? How do deal with huge lead time requirements? Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 9

10. The Oracle APS and Demantra Specialists Business challenges Not able to satisfy requirements by request date with current inventory levels Need to determine and add inventory strategically Need flexibility in using common materials into large number of finished goods Customers do not always provide enough lead times Lead times can be up to 14 weeks Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 10

11. The Oracle APS and Demantra Specialists Business challenges Forecast accuracy and demand stability are quite poor Supplier delivery performance contributes to uncertainty Need to rely upon key trading partners to fulfill demands Exploit the natural build lead times to push inventory away from finished goods Complex supply chain structure makes it very difficult to plan for inventory levels Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 11

12. The Oracle APS and Demantra Specialists Supply Chain Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 12

13. The Oracle APS and Demantra Specialists Characteristics of supply Chain Generally 5 to 8 levels deeps Goes across 3 organizations Each end item has anywhere from 100 to 400 components Relatively short manufacturing lead times Long material procurement lead times Extensive commonality of components in each family of end products Same common materials can be packaged into a vast number of finished goods Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 13

14. The Oracle APS and Demantra Specialists Simplified supply chain BOM Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 14

15. The Oracle APS and Demantra Specialists Products fan out Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 15

16. The Oracle APS and Demantra Specialists Need for System Support Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 16

17. The Oracle APS and Demantra Specialists Several critical complexities to consider A B X CD E F DGCH A I J Y Multi- echelon Pooling Time varying Inventory Postponement Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 17

18. The Oracle APS and Demantra Specialists Consider legitimate drivers for inventory requirements such as Service Levels Consider the entire supply chain BOM structure Consider uncertainties – namely demand uncertainty and supplier delivery performance Consider appropriate lead times at various levels Consider dependent demand and propagate need for inventory across the supply chain Need for programmatic inventory calculation Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 18

19. The Oracle APS and Demantra Specialists Modeling Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 19

20. The Oracle APS and Demantra Specialists Modeling Strategic Inventory Demand Variability Lead Time Variability Service Levels MAPE (Mean Absolute Percent Error) for each product line Primary driver for setting this was based on OTD Via simple probability distribution of lateness Supply Chain BOM Supply Chain BOM using BOM, sourcing, routings Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 20

21. The Oracle APS and Demantra Specialists Demand Uncertainty –MAPE calculated by comparing history to actual –Default MAPE where there was no history –Varied MAPE to calculate reasonable inventory levels Supplier Delivery Performance –Set up dummy supplier –In IO plan all purchased parts were sourced using above dummy supplier –Lateness distribution associated with dummy supplier Modeling Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 21

22. The Oracle APS and Demantra Specialists Implementing Inventory Optimization Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 22

23. The Oracle APS and Demantra Specialists Safety Stock method - MRP planned % vs non MRP planned Lead times – Processing, pre-processing, post-processing, intransit ABC classes - plan selects items based on ABC classes Alternate BOMs and Substitutes – made a strategic decision to not consider alternates and substitutes Forecast error measure MAPE fed at item level Supplier LT variability –Single supplier source for all buy items –Establish ASL relationships –Feed distribution st supplier level Important set up for IO to run Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 23

24. The Oracle APS and Demantra Specialists Used internal cost roll up instead if actual costs Set up Weights to increase the rolled up costs Carrying costs was set to a global value Set postponement factor to 20 Used profiles to prevent SS calculation on alternate paths and substitute items Used 24 by 7 calendar in all orgs to smooth out safety stock requirements Other significant set ups Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 24

25. The Oracle APS and Demantra Specialists IO runs with 36 weekly buckets and no period buckets Penalty factors chosen to derive stable results No existing supplies or scheduled receipts considered DP scenarios used to feed MAPE numbers into the plan Enforce service level plans Plan options Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 25

26. The Oracle APS and Demantra Specialists A X LT= 5 days LT= 65 days B Postponed SS is in matched sets Both A and B will get SS based on max LT which is A A X LT= 5 days LT= 65 days B Postponed SS is based on LT for each component A and B will get SS based on their LTs Enhanced postponement NORMAL POSTPONEMENT ENHANCED POSTPONEMENT Source Photonics used Enhanced Postponement Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 26

27. The Oracle APS and Demantra Specialists Constrained ASCP plans with decision rules was already in production Introduced transient (temporary) safety stock requirements using IO Objective was to introduce IO as input without significantly affecting plan quality (lateness, inventory etc.) Integrating ASCP and IO was a significant effort –Safety Stocks vary across the horizon and finally disappear (transient) –No dedicated supplies created to satisfy SS requirements –The actual supplies are pulled forward instead of creating new supplies. Needed to make room for this effect ASCP plans with IO as input Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 27

28. The Oracle APS and Demantra Specialists IO calculates propagated Service Levels to derive SS for buy items With large number of items at a given level the Service Level tends to go to 99.99% very fast Beta factor allowed for tempering the above effect Source photonics used this factor to fine tune SS levels for buy items Propagated service levels Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 28

29. The Oracle APS and Demantra Specialists Plans very intricate and a long supply chain – up to 120 days cumulative lead time. Each end item can have to 300 items We avoid planning all substitute and alternate paths in IO Demand variability modeled via MAPE measure Postponement used to push safety stocks through all levels of BOM (max of 8 levels) Used ‘enhanced postponement’ logic – lead time specific safety stock for sibling items We use supplier lead time variability to model delivery performance Plan facts Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 29

30. The Oracle APS and Demantra Specialists Enforce Service Level plans IO plans approximately 7300 items in 2.5 hours Safety Stocks calculated for about 4000 items Plan horizon is 36 weeks Demand variability specified via MAPE Includes both demand and supplier LT variability Do not consider scheduled receipts Plan facts Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 30

31. The Oracle APS and Demantra Specialists IO Integration with Constrained ASCP Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 31

32. The Oracle APS and Demantra Specialists Sized the requirements from safety stocks to make it true transient safety stock Added additional internal resources to accommodate both regular demands and safety stocks requirements Used profiles to minimize shared supplies between regular demands and SS requirements Smoothed safety stock requirements such that system had a chance to consume all supplies within plan horizon Steps taken to make ASCP work Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 32

33. The Oracle APS and Demantra Specialists Lot for Lot Number of supplies to be scheduled Number of times to re-schedule shared supplies Supplies used to satisfy safety stock Demand and Supply Window widths Use Optimization Phase dates for pegging Split planned orders to perform safety stock pegging Factors considered to fine tune ASCP Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 33

34. The Oracle APS and Demantra Specialists Cutover Process Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 34

35. The Oracle APS and Demantra Specialists Plans with no postponement, Demand variability only Plans with postponement Demand variability only Plans with postponement Demand and supplier lead time variability IO plans Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 35

36. The Oracle APS and Demantra Specialists Days of supply needed to hold/support manufacturing activities Instead of verifying exact SS calculations, concentrated on factors that could affect SS and sensitivity of SS due to each factor –Role of lead times in arriving at SS –Importance of Service Levels in calculating SS –Important set up issues that could affect SS – ABC classes, SS method, lead times, types of lead times Explaining output from IO Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 36

37. The Oracle APS and Demantra Specialists Plans with postponement Demand variability only Plans with postponement Demand and supplier lead time variability ASCP plans Constrained ASCP Plans Constrained ASCP Plans Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 37

38. The Oracle APS and Demantra Specialists Initially fed SS for only buy items into ASCP Provided a gradual ramp up of SS to give a chance for manufacturing and other resources to react Made SS requirements transient to avoid pegging to excess –Cut off SS requirements after the longest cumulative Mfg lead time –Set SS to zero for a few buckets prior to end of demands Adoption of IO into ASCP plans Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 38

39. The Oracle APS and Demantra Specialists Results & Summary Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 39

40. The Oracle APS and Demantra Specialists The overall safety stock planned is in line with expectations- approximately 6 weeks of inventory in the system The inventory value matches with the current levels in plan with no postponement Plans with postponement shows improvement up to 20% in inventory value Satisfaction of orders by customer request date is expected with a comprehensive execution of IO plans Results Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 40

41. The Oracle APS and Demantra Specialists Summary Needed a comprehensive inventory planning system to plan and satisfy requirements by request dates Utilized Oracle Inventory Optimization to plan inventory levels Used demand and supplier lead time variabilities to influence safety stock requirements Significantly improved customer fulfillment and inventory reduction Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 41

42. The Oracle APS and Demantra Specialists Question & Answers? Sridhar Hoskote510 676 6753 Sridhar.hoskote@inspirage.com Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 42