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18th May 2011
Table of Contents
                      Need for Inventory


                     Underlying Principles


            Current Philosophies of Inventory Mgmt


                 Pros and Cons of IM Principles


                        TOC and MEIO


            Primary Needs of an Effective IM System

                      MapMySupplyChain




5/27/2011                Strictly Private & Confidential   2
Need for Inventory
   Inventory                                                                        Effective IM   MapMySupply
                     Principles   Philosophies     Pros and Cons     TOC and MEIO
     Need                                                                              System         Chsin

    To tide against Supply Chain Uncertainities – Transporter uncertainity, Supplier Lead
       Time, etc.

    Ensure all Customers, at every location are served at the right time, with the right
       quantity

    Normally, Sales People would like to Stock up, as much Inventory as possible, so that
       Stock Out scenarios are ruled out

    On the other hand, the CFO would like to cut inventories, so that the capital costs are
       kept in check

    If Planned properly, Inventory will have a positive impact on Customer Satisfaction

    If Planning of Inventory is inaccurate, then it leads to either:

             Stock outs, Customer Dissatisfaction, lost sales and indirect cost increase or

             Increase in Capital Costs, Obsolescence and raises Operational challenges


5/27/2011                                  Strictly Private & Confidential                                3
Underlying Principles
                                                                                  Effective IM   MapMySupply
 Inventory Need   Principles    Philosophies     Pros and Cons     TOC and MEIO
                                                                                     System         Chsin

    Underlying assumptions that define a Supply Chain Inventory model is often

       conflicting. This is depicted in the figure.

    Underlying principle
         conflict




5/27/2011                                Strictly Private & Confidential                                4
Current Philosophies of Inventory Management
                                                                                             Effective IM   MapMySupply
 Inventory Need   Principles   Philosophies         Pros and Cons   TOC and MEIO
                                                                                                System         Chsin

  Inventory Management in the current context, is designed to be held closer to the
   customers
  But not all products/SKUs can be held close to the Customers, at all times. This means
   there would be further classification of SKUs as fast moving, slow moving, etc. and then
   the fast moving SKUs will be stocked closer to the Customer. At the same time, the slow
   moving will be held closer to the place of manufacture
  This leads to formation of echelons. The fresh order receipts, are at the Regional
   Warehouse or Motherhouse and the SKUs are then moved to a local Distribution for
   further storage, before dispatch
  The issues with Multi - echelon formation, is that Inventory Planning, at times are
   carried out for One – echelon, without taking into consideration its effect on other
   echelons
  This may either lead to excess Inventory stocking in one or more of the echelons OR
   stock out situation in any one of the echelons




       Plant                   Regional Warehouse                          Local Warehouse                   Customer




5/27/2011                                Strictly Private & Confidential                                            5
Current Philosophies of Inventory Management
                                                                                                        Effective IM   MapMySupply
 Inventory Need   Principles          Philosophies         Pros and Cons          TOC and MEIO
                                                                                                           System         Chsin

    Further, the quanity that needs to be held at each level is a question mark
    A company may have around 1000 SKUs, out of which 10 may be fast moving, in one
     market and slow moving in 4 other markets.Similarly few other SKUs may be fast
     moving in a totally different market. So how much Inventory should we hold?
    To be safe few companies, may not only stock excess inventory in the local
     warehouses but also in the regional warehouses
    At one end the supply chain the question is how much to produce? And at the other
     end the question is how much will be consumed?




       Plant                          Regional Warehouse                              Local Warehouse                   Customer
                           Quantity                                        Quantity




                                                               SKU                                            SKU




5/27/2011                                       Strictly Private & Confidential                                                6
Pros and Cons of IM Philosophies
                                                                                   Effective IM   MapMySupply
 Inventory Need     Principles   Philosophies    Pros and Cons      TOC and MEIO
                                                                                      System         Chsin
 Sr. No.    Pros                           Cons

 1.         Customer Demands may The Inventory Carrying Cost to meet Customer
            be met               Demand is too high
 2.         The Regional Warehouse         The indirect cost of movement of inventory between
            can act as an extended         Regional and Local warehouse may be high, in
            Buffer Stock for Local         addition to the Inventory Carrying Cost, at both
            Warehouses                     places
                                           Excess Inventory may become Obsolete, if Market
                                           dynamics change
                                           Production of Products, with added buffers, may lead
                                           to shortfalls in production of other Products
                                           Sudden spike in demand for a particular product, may
                                           become difficult to meet
                                           Agility of the Supply Chain takes a hit
                                           Excess Inventory may have adverse effect on the
                                           Financials


5/27/2011                                 Strictly Private & Confidential                                7
Theory of Constraints and MEIO
                                                                       TOC and   Effective IM   MapMySupply
 Inventory Need     Principles   Philosophies     Pros and Cons
                                                                        MEIO        System         Chsin

    Theory of Constraints (TOC) has a different view to Multi – Echelon Inventory
       Optimization (MEIO) from the one we have already discussed

    The Concept so used is called, Demand Pull and Buffer Management (DPBM)

   Demand Pull

    The concept says, that instead of Placing the Inventory closer to the Customer, it
       subscribes to the principle of holding the Inventory closer to the source (Factory, in
       this case)

    The Regional warehouse only maintains stock needed for replenish lead time

    Once the customer places an order for a particular product with the Regional
       Warehouse, the ordered quantity will be simultaneously reported to the Regional
       Warehouse

    The factory will deliver the products promptly, once they are produced


5/27/2011                                 Strictly Private & Confidential                              8
Theory of Constraints and MEIO
                                                                         TOC and   Effective IM   MapMySupply
 Inventory Need       Principles   Philosophies     Pros and Cons
                                                                          MEIO        System         Chsin

   Buffer Management
    Buffer Management is a method used to monitor the inventory in Factory or Regional
       Warehouse
    In TOC, the biggest quantity required in replenish lead time is regarded as the target buffer
       stock
    Once the target buffer stock has been determined, it is divided into 3 parts

               Neglected Zone (Green Zone)
               Warning Zone (Yellow Zone)
               Rush Zone (Red Zone)
    If Inventory is in the Neglected Zone, it is required to reduce the Inventory

    If Inventory is in the Rush Zone, it is required to increase Inventory

    By using Buffer Management, the Inventory can be maintained at an appropriate level,
       without running out of stock



5/27/2011                                   Strictly Private & Confidential                              9
Theory of Constraints and MEIO
                                                                      TOC and   Effective IM   MapMySupply
 Inventory Need   Principles    Philosophies     Pros and Cons
                                                                       MEIO        System         Chsin

   Performance Evaluation

    Further, in the aspect of Performance Evaluation – the commonly used terms like Inventory
       Turn – Over Rate and Stock – Out Rate are modified to TDD and IDD

    TDD index measure reliability. That is it measures “How much work is uncompleted”

    IDD index measures effeciency. That is “How much work is overdone”

   TDD

    When the company or department is unable to meet the deadline for delivery, TDD is index
       will be computed to show the level of incompletion.

    The computation is to multiply the effective production value by the number of days delayed

    The bigger the TDD value, the longer is the order delayed, which means more damages to
       the company

    An Organization or department should follow the principle of zero TDD



5/27/2011                                Strictly Private & Confidential                             10
Theory of Constraints and MEIO
                                                                     TOC and   Effective IM   MapMySupply
 Inventory Need   Principles   Philosophies     Pros and Cons
                                                                      MEIO        System         Chsin

   IDD

    When a company produces more than enough products, it is considered ineffecient

    This not only raises the cost of Inventory but also wastes raw materials

    The computation is to multiply the Inventory Value by the Total Time Spent in the
       warehouse

    Bigger the IDD value means, higher overstock which leads to higher Inventory Costs
       and delivery delays due to insufficient raw materials, resources for manufacturing
       other products

    Therefore, company or department should strive to lower the IDD




5/27/2011                               Strictly Private & Confidential                              11
Primary Needs of an Effective IM System
                                                                                 Effective IM   MapMySupply
 Inventory Need   Principles   Philosophies     Pros and Cons     TOC and MEIO
                                                                                    System         Chsin

   A System which makes an Inventory Management System effective should factor in:

    Demand Forecasts

    Manufacturing Capcities

    Supplier Capabilities

    Integrated Planning Environment

    Linking Planned parameters (TDD, IDD, etc.) with key Financial Measures

   That would basically mean, an Organization can review supply chain planning decisions
   based on their financial impact, especially when it comes to revenue, profitability, and
   return-on-assets.

   If in addition to these parameters, an actual real-time end to end visibility is brought in,
   then the decision making and planning, can have an actual view of the impact of thier
   decisions


5/27/2011                               Strictly Private & Confidential                               12
MapMySupplyChain
                                                                                  Effective IM   MapMySupply
 Inventory Need   Principles    Philosophies     Pros and Cons     TOC and MEIO
                                                                                     System         Chsin

   1. All of the essential parameters that we discussed are covered in the product –
        MapMySupplyChain
   2. The product uses Google Map to provide location of Factories, Warehouses, Markets
        and Inventory availability SKU wise
   3. This allows the Management and Operations Team likewise to see their Market in
        front of them
   4. It further alllows the simulation of decisions, even before the decision is actually
        implemented. Which means, the plan to produce extra quantity of a partcular product,
        can be traced right up to the forecasted consumption, in a particular market. So, if a
        particular warehouse runs out of stock, then an immediate corrective action, can be
        taken, at the simulation stage itself
   5. The product can be further used to Optimize Inventory, Resource, Location, Network,
        etc.


5/27/2011                                Strictly Private & Confidential                               13
MapMySupplyChain – MEIO Solution
                                                                                    Effective IM   MapMySupply
 Inventory Need     Principles   Philosophies     Pros and Cons     TOC and MEIO
                                                                                       System         Chsin


                                                                            1.Each echelon and its entities
                                                  Warehouses                  are depicted on Google Map
            Plant
                                                                              as per its location
                                                                            2.Location                 based
                                                                              replenishment policy like
                                                                              safety stock, cyclic stock,
                                                                              replenish lead time, replenish
                                                                              quantity      and     replenish
                                                                              triggering point, can be
                                                                              configured
                                                                            3.Simulate complete end to
                                                                              end supply chain with each
                                                                              echelon’s entities
                                                                            4.Heuristic based optimization
                                                                              approach and encapsulates
                                                                              TOC fundamentals
                                                                            5.Intimate business users as
                                                                              replenish trigger point comes


5/27/2011                                 Strictly Private & Confidential                                14
MapMySupplyChain – MEIO Solution
                                                                                    Effective IM   MapMySupply
 Inventory Need     Principles   Philosophies     Pros and Cons     TOC and MEIO
                                                                                       System         Chsin


                                                                            6. Optimize ordering policy like
            Plant
                                                  Warehouses                   replenish quantity, lead time
                                                                               & triggering point
                                                                            7. Adaptive       enough       to
                                                                               incorporate     change      in
                                                                               supply        &       demand
                                                                               fluctuations
                                                                            8. Makes system immune to
                                                                               supply & demand variations
                                                                            9. Easy to use and implement,
                                                                               same experience as with
                                                                               excel - spreadsheet solution




5/27/2011                                 Strictly Private & Confidential                                15
MapMySupplyChain – TOC Approach
                                                                                      Effective IM   MapMySupply
 Inventory Need     Principles   Philosophies     Pros and Cons     TOC and MEIO
                                                                                         System         Chsin


                                                                            1.All Supply Chain entities are
                                                  Warehouses                  mapped on the interactive Map
            Plant
                                                                            2.Lead time drives ordering policy
                                                                              at each location
                                                                            3.IDD & TDD are computed and
                                                                              optimized
                                                                            4.At     every    echelon    Buffer
                                                                              Inventory, with largest replenish
                                                                              lead time becomes critical and
                                                                              hence requires zone computation
                                                                              for replenishments
                                                                            5.The production run is in batches,
                                                                              as per need and maximum
                                                                              Inventory is held closer to the
                                                                              Manufacturing Plant
                                                                            6.The complete supply chain is
                                                                              based on the Demand Pull and
                                                                              Buffer Management Principle




5/27/2011                                 Strictly Private & Confidential                                  16
Multi echelon-inventory-optimization

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Multi echelon-inventory-optimization

  • 2. Table of Contents Need for Inventory Underlying Principles Current Philosophies of Inventory Mgmt Pros and Cons of IM Principles TOC and MEIO Primary Needs of an Effective IM System MapMySupplyChain 5/27/2011 Strictly Private & Confidential 2
  • 3. Need for Inventory Inventory Effective IM MapMySupply Principles Philosophies Pros and Cons TOC and MEIO Need System Chsin  To tide against Supply Chain Uncertainities – Transporter uncertainity, Supplier Lead Time, etc.  Ensure all Customers, at every location are served at the right time, with the right quantity  Normally, Sales People would like to Stock up, as much Inventory as possible, so that Stock Out scenarios are ruled out  On the other hand, the CFO would like to cut inventories, so that the capital costs are kept in check  If Planned properly, Inventory will have a positive impact on Customer Satisfaction  If Planning of Inventory is inaccurate, then it leads to either:  Stock outs, Customer Dissatisfaction, lost sales and indirect cost increase or  Increase in Capital Costs, Obsolescence and raises Operational challenges 5/27/2011 Strictly Private & Confidential 3
  • 4. Underlying Principles Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin  Underlying assumptions that define a Supply Chain Inventory model is often conflicting. This is depicted in the figure. Underlying principle conflict 5/27/2011 Strictly Private & Confidential 4
  • 5. Current Philosophies of Inventory Management Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin  Inventory Management in the current context, is designed to be held closer to the customers  But not all products/SKUs can be held close to the Customers, at all times. This means there would be further classification of SKUs as fast moving, slow moving, etc. and then the fast moving SKUs will be stocked closer to the Customer. At the same time, the slow moving will be held closer to the place of manufacture  This leads to formation of echelons. The fresh order receipts, are at the Regional Warehouse or Motherhouse and the SKUs are then moved to a local Distribution for further storage, before dispatch  The issues with Multi - echelon formation, is that Inventory Planning, at times are carried out for One – echelon, without taking into consideration its effect on other echelons  This may either lead to excess Inventory stocking in one or more of the echelons OR stock out situation in any one of the echelons Plant Regional Warehouse Local Warehouse Customer 5/27/2011 Strictly Private & Confidential 5
  • 6. Current Philosophies of Inventory Management Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin  Further, the quanity that needs to be held at each level is a question mark  A company may have around 1000 SKUs, out of which 10 may be fast moving, in one market and slow moving in 4 other markets.Similarly few other SKUs may be fast moving in a totally different market. So how much Inventory should we hold?  To be safe few companies, may not only stock excess inventory in the local warehouses but also in the regional warehouses  At one end the supply chain the question is how much to produce? And at the other end the question is how much will be consumed? Plant Regional Warehouse Local Warehouse Customer Quantity Quantity SKU SKU 5/27/2011 Strictly Private & Confidential 6
  • 7. Pros and Cons of IM Philosophies Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin Sr. No. Pros Cons 1. Customer Demands may The Inventory Carrying Cost to meet Customer be met Demand is too high 2. The Regional Warehouse The indirect cost of movement of inventory between can act as an extended Regional and Local warehouse may be high, in Buffer Stock for Local addition to the Inventory Carrying Cost, at both Warehouses places Excess Inventory may become Obsolete, if Market dynamics change Production of Products, with added buffers, may lead to shortfalls in production of other Products Sudden spike in demand for a particular product, may become difficult to meet Agility of the Supply Chain takes a hit Excess Inventory may have adverse effect on the Financials 5/27/2011 Strictly Private & Confidential 7
  • 8. Theory of Constraints and MEIO TOC and Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons MEIO System Chsin  Theory of Constraints (TOC) has a different view to Multi – Echelon Inventory Optimization (MEIO) from the one we have already discussed  The Concept so used is called, Demand Pull and Buffer Management (DPBM) Demand Pull  The concept says, that instead of Placing the Inventory closer to the Customer, it subscribes to the principle of holding the Inventory closer to the source (Factory, in this case)  The Regional warehouse only maintains stock needed for replenish lead time  Once the customer places an order for a particular product with the Regional Warehouse, the ordered quantity will be simultaneously reported to the Regional Warehouse  The factory will deliver the products promptly, once they are produced 5/27/2011 Strictly Private & Confidential 8
  • 9. Theory of Constraints and MEIO TOC and Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons MEIO System Chsin Buffer Management  Buffer Management is a method used to monitor the inventory in Factory or Regional Warehouse  In TOC, the biggest quantity required in replenish lead time is regarded as the target buffer stock  Once the target buffer stock has been determined, it is divided into 3 parts  Neglected Zone (Green Zone)  Warning Zone (Yellow Zone)  Rush Zone (Red Zone)  If Inventory is in the Neglected Zone, it is required to reduce the Inventory  If Inventory is in the Rush Zone, it is required to increase Inventory  By using Buffer Management, the Inventory can be maintained at an appropriate level, without running out of stock 5/27/2011 Strictly Private & Confidential 9
  • 10. Theory of Constraints and MEIO TOC and Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons MEIO System Chsin Performance Evaluation  Further, in the aspect of Performance Evaluation – the commonly used terms like Inventory Turn – Over Rate and Stock – Out Rate are modified to TDD and IDD  TDD index measure reliability. That is it measures “How much work is uncompleted”  IDD index measures effeciency. That is “How much work is overdone” TDD  When the company or department is unable to meet the deadline for delivery, TDD is index will be computed to show the level of incompletion.  The computation is to multiply the effective production value by the number of days delayed  The bigger the TDD value, the longer is the order delayed, which means more damages to the company  An Organization or department should follow the principle of zero TDD 5/27/2011 Strictly Private & Confidential 10
  • 11. Theory of Constraints and MEIO TOC and Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons MEIO System Chsin IDD  When a company produces more than enough products, it is considered ineffecient  This not only raises the cost of Inventory but also wastes raw materials  The computation is to multiply the Inventory Value by the Total Time Spent in the warehouse  Bigger the IDD value means, higher overstock which leads to higher Inventory Costs and delivery delays due to insufficient raw materials, resources for manufacturing other products  Therefore, company or department should strive to lower the IDD 5/27/2011 Strictly Private & Confidential 11
  • 12. Primary Needs of an Effective IM System Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin A System which makes an Inventory Management System effective should factor in:  Demand Forecasts  Manufacturing Capcities  Supplier Capabilities  Integrated Planning Environment  Linking Planned parameters (TDD, IDD, etc.) with key Financial Measures That would basically mean, an Organization can review supply chain planning decisions based on their financial impact, especially when it comes to revenue, profitability, and return-on-assets. If in addition to these parameters, an actual real-time end to end visibility is brought in, then the decision making and planning, can have an actual view of the impact of thier decisions 5/27/2011 Strictly Private & Confidential 12
  • 13. MapMySupplyChain Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin 1. All of the essential parameters that we discussed are covered in the product – MapMySupplyChain 2. The product uses Google Map to provide location of Factories, Warehouses, Markets and Inventory availability SKU wise 3. This allows the Management and Operations Team likewise to see their Market in front of them 4. It further alllows the simulation of decisions, even before the decision is actually implemented. Which means, the plan to produce extra quantity of a partcular product, can be traced right up to the forecasted consumption, in a particular market. So, if a particular warehouse runs out of stock, then an immediate corrective action, can be taken, at the simulation stage itself 5. The product can be further used to Optimize Inventory, Resource, Location, Network, etc. 5/27/2011 Strictly Private & Confidential 13
  • 14. MapMySupplyChain – MEIO Solution Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin 1.Each echelon and its entities Warehouses are depicted on Google Map Plant as per its location 2.Location based replenishment policy like safety stock, cyclic stock, replenish lead time, replenish quantity and replenish triggering point, can be configured 3.Simulate complete end to end supply chain with each echelon’s entities 4.Heuristic based optimization approach and encapsulates TOC fundamentals 5.Intimate business users as replenish trigger point comes 5/27/2011 Strictly Private & Confidential 14
  • 15. MapMySupplyChain – MEIO Solution Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin 6. Optimize ordering policy like Plant Warehouses replenish quantity, lead time & triggering point 7. Adaptive enough to incorporate change in supply & demand fluctuations 8. Makes system immune to supply & demand variations 9. Easy to use and implement, same experience as with excel - spreadsheet solution 5/27/2011 Strictly Private & Confidential 15
  • 16. MapMySupplyChain – TOC Approach Effective IM MapMySupply Inventory Need Principles Philosophies Pros and Cons TOC and MEIO System Chsin 1.All Supply Chain entities are Warehouses mapped on the interactive Map Plant 2.Lead time drives ordering policy at each location 3.IDD & TDD are computed and optimized 4.At every echelon Buffer Inventory, with largest replenish lead time becomes critical and hence requires zone computation for replenishments 5.The production run is in batches, as per need and maximum Inventory is held closer to the Manufacturing Plant 6.The complete supply chain is based on the Demand Pull and Buffer Management Principle 5/27/2011 Strictly Private & Confidential 16