Helping CFOs, COOs, and Supply Chain Heads of diverse blue-chip manufacturing organizations improve working capital, budgeting, planning, and risk management through inventory optimization analytics

1. Inventory Optimizer
Smarter way to manage inventory using unique combination of process,
analytics and technology
Gianni Giacomelli
Senior Vice President, Genpact
David Petrucci
Vice President, Industrial Solutions, Genpact

2. A Global Business Process Services Leader: Process
Transformation and Outsourcing, Analytics, Technology
What
we do
How
we do it
Our
impact
We help leaders of some
of the largest enterprises
transform and run
their processes and
operations, including
the very complex and
industry-specific
Unbiased, agile combination
of process science, related
technology and analytics limits
upfront costs and enhances
future adaptability
We help enterprises to be
more competitive by
becoming more
intelligent:
adaptive, innovative, globall
y effective and
connected…
Right critical mass:
•
we are large (64,000+ global
staff) but our solutions
appropriately flexible
•
our top management is
directly involved in our client
partnerships
…by enabling tighter
management of
costs, risks, regulations,
and supporting growth
The results: US$22B* of impact for 800+ global clients
PROCESS • ANALYTICS • TECHNOLOGY
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2

3. THE CHALLENGE
PROCESS • ANALYTICS • TECHNOLOGY
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3

4. Inventory planning sits at a critical junction of finance, supply
SIMPLIFIED
chain, procurement and sales
External Stakeholders
Reporting
(financial, non-financial)
Forecast, Report
(financial, non-financial)
Revenue,
Working Capital (AR)
Sales &
marketing
COGS for pricing
(short and medium term),
Demand /
Inventory, logistics, supply
chain footprint
PROCESS • ANALYTICS • TECHNOLOGY
Performance expectations
(financial, non-financial)
CEO, Board
Short- and long-term expectations of:
Margin, Earnings Growth, Capital
Intensity
Finance
Budget, KPIs
, allocation
and
monitoring of
OP/CAPEX,
Inventory
COGS
(short and
long term)
and
respective
risk,
EHS risks
Operations
(mfg, facilities)
Working
Capital (AP)
Procurement
Demand and availability
of production inputs
(commodities, energy, co
mponents),
respective short and
medium term price
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4

5. Increasingly significant inventory challenges lead to..
•
Increased supply
chain complexity
Sub optimal
inventory
practices
Limited data
availability and
analytics capacity
PROCESS • ANALYTICS • TECHNOLOGY
Global footprint, more SKUs sourced, shorter response
times, increasing cost and demand volatility, frequent
changes in end-customer needs
•
Managing dynamic cost and service levels requires
dynamic and granular inventory management
•
Sub-optimal allocation of inventory across sites
•
Inaccurate demand forecasting, often up to 50%
•
5-10% wastage due to rapid obsolescence of
inventory
•
Fragmented IT systems across global supply chain adds
to complexity and impede optimization
•
Lack of a granular and dynamic view of inventory e.g.
by customer, product type, cost etc.
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5

6. ..working capital pressure, unrealized revenues..
Working
capital
pressure
• Unnecessary inventory may drive working capital up by 510%
• Inventory excess, volatility slows cash flows by 4-5%
…resulting in opportunity cost e.g. more limited investment in
sales and marketing, or straight cost e.g. short-term interest
spread
• Stock-outs can lead to 2-3% lost sales
Unrealized
revenues
• Suboptimal level of inventory can also lead to
‒ slow order fulfillment, increasing cash-to-cash cycle
and impacting customer service levels
‒ penalty payments due to contractual obligation
PROCESS • ANALYTICS • TECHNOLOGY
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6

7. ……as well as budgeting, planning and risk management issues
•
Wrong working capital assumptions
(stock, replenishment, obsolescence) lead to suboptimal
investment in other areas
Obsolescence: obsolete inventory immobilizes cash, writeoffs directly hit profit
•
Claims: significant customer liability can arise from non- or
slow fulfillment
•
PROCESS • ANALYTICS • TECHNOLOGY
Stock-outs or write-offs lead to high variance of actual Vs.
plan
•
Risk
Management
•
•
Budgeting and
Planning
Inaccurate and static demand forecasting impairs timely and
effective budgeting and resource allocation
Regulatory: environmental and waste disposal risk from
aged and obsolete inventory in certain industries
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7

8. THE SOLUTIONS
PROCESS • ANALYTICS • TECHNOLOGY
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8

9. Robust and modular inventory optimization approach
A
B
C
Multi-criteria
inventory
segmentation
Visibility
management
D
Demand
forecasting
• Inventory metrics - • Segmentation
dashboard
based on
including flow
customer, product
and bottleneck
and other custom
visibility
criteria
• Sophisticated
forecasting
models (e.g. for
intermittent
demand)
• Financial metrics
including working
capital projections
• Forecast
simulation
• Monitoring
exceptions to
plans
• Sensitivity
analysis and
simulation by
segment
• Inventory
strategies by
segment
PROCESS • ANALYTICS • TECHNOLOGY
• Adjustments
based on market
and business
intelligence
E
Planning and
optimization
• Replenishment
and ordering
strategy
• Multi-echelon
inventory
optimization
models
Obsolescence
management
• Identifying and
estimating
potential
obsolescence
risks
• Develop mitigation
strategies
• Advanced
forecasting and
inventory models
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9

10. A
Visibility management provides granular and actionable reports
ILLUSTRATIVE
to improve planning and monitoring
What can be achieved
Sample output
• Comprehensive view of metrics for better informed
inventory decisions and risk management
• Better segmentation of inventory which helps prioritize
remedial actions
• Improved controllership and effective base lining
• Setting realistic improvement targets
Delivery approach
Technology
• QlikView, a flexible cost-effective IT platform, for customized
dashboards
• Cloud based in-house solution which integrates with
existing ERP systems
Analytics
• KPI enterprise dashboards with multi-dimensional drilldowns (e.g. time, location, product family, etc.), trend analysis
On-going services
• Benchmarking (internal/external) on key supply chain metrics
PROCESS • ANALYTICS • TECHNOLOGY
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10

11. B
Multi-criteria inventory segmentation enables inventory
redeployment, increase cash flows and return on asset
ILLUSTRATIVE
What can be achieved
•
Effective inventory redeployment which helps reduce
excess inventory and/or re-deploy investment in high
performing inventory
•
Increase return on assets (ROA)
•
Sample outputs
Increase in cash flow, revenue and profitability
Delivery approach
Technology
•
Cloud based in-house solution which integrates with existing
ERP systems; pay for „solution‟ not „infrastructure‟
Analytics
•
A multi-criteria approach accounts for financial (e.g., gross
margin), operational (e.g., velocity of movement) and
customer criticality factors (e.g., high volume products)
•
AHP (Analytical Hierarchy Process) based algorithm
On-going services
•
Segmentation strategy design, periodic modifications based on
business changes and execution
PROCESS • ANALYTICS • TECHNOLOGY
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11

12. C
Standardizing demand forecasting improves forecast
accuracy, response to market, and planning efficiency
What can be achieved
ILLUSTRATIVE
• Up to 30-35% reduction in forecasting errors
• Up to 20% better planning efficiency through scenario based
modeling
Sample outputs and templates
• Pro-active response to dynamic market conditions
Delivery approach
Technology
• Cloud based in-house solution with seamless access to ERP
data
• Flexible cost-effective IT platform for granular, frequently
updated forecasts
Analytics
• Advanced forecasting models to handle dynamic and
intermittent demand reducing forecasting errors e.g.
Croston’s, Fourier
• Factoring in market intelligence in the forecasting models
enables accurate forecasts
On-going services:
• Demand planning and forecasting at agreed frequency
PROCESS • ANALYTICS • TECHNOLOGY
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12

13. D
Improved planning and optimization helps minimize overall
inventory, improve service levels
What can be achieved
•
Customized business policies and strategies, such as
optimal safety stock for top-selling products and low-selling
products
•
Minimize the total inventory costs, including carrying
cost, stock-out cost, and ordering cost, while setting
adequate service levels
•
ILLUSTRATIVE
Effective service level planning through lead time
optimization on a continuous basis
Delivery approach
Technology
•
Pragmatic technology in partnership with industry leading
players e.g. Steelwedge and Kenaxis
Analytics
•
A hybrid approach to customized replenishment policies
that account for inventory classification, demand
pattern, customer criticality and other business-specific
parameters
On-going services
•
Continuous support in response to business changes using
experienced resources
PROCESS • ANALYTICS • TECHNOLOGY
© 2014 Copyright Genpact. All Rights Reserved.
13

14. E
Obsolescence management helps minimizing working capital
requirement, manage obsolescence risk
ILLUSTRATIVE
What can be achieved
•
Minimizing working capital and increasing profitability by
releasing cash from excess inventory
•
Effective inventory redeployment
•
Sample outputs
Estimating risk of obsolescence
Delivery approach
Technology
•
Interactive dashboards with slicing and dicing capability for
granular and timely visibility
Analytics
•
Identifying existing and potential obsolescence
•
Risk estimation and mitigation recommendations
On-going services
•
Obsolescence management on a periodic basis or at a
product family level
PROCESS • ANALYTICS • TECHNOLOGY
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14

15. Inventory optimization’s advantages over other approaches
Classic
Inventory
Management
Advanced
Inventory
Management
Inventory
Optimization
•
Materials
Requirements
Planning (MRP)
Constraint based
planning (APS)
IO engine
Days of supply
rules for setting
inventory levels
ABC Classification
Profit-driven
analysis
Materials
Management
System
Closed loop
planning and
analytics with
inventory control via
execution
management
Resorts to chase
techniques
Optimized
considering
production and
transportation
Cycle counting
No control over
production
scheduling
Advantage of Inventory Optimization
over prior methods
PROCESS • ANALYTICS • TECHNOLOGY
Better characterized demand
uncertainty lead time variability
•
Advanced modeling integrates with
MRP and APS
Rationalizes inventory with minimal
impact on revenue/profit
•
More predictable materials flow
•
Faster re-configuration of supply
chain
•
Smoother absorption and handling
of unexpected supply or demand
swings
Better synchronization between
production and dispatch
© 2014 Copyright Genpact. All Rights Reserved.
15

16. Up to 10% working capital reduction can be achieved through
robust inventory optimization
Improvement potential
Visibility management
Multi-criteria inventory
classification
Demand forecasting
Planning and
optimization
Near-time KPIs visibility aids quick
decisions
1.5%
Structured techniques for optimal
segmentation and prioritize
inventory investments
2.5%
Advanced models coupled with
market intelligence to improve
forecast accuracy
3.0%
2.0%
Obsolescence
management
1.0%
Proprietary techniques for optimal
replenishment and service strategies
Proactively predict, track and manage
inventory risks throughout the lifecycle
Total improvement up to 10% of working capital
PROCESS • ANALYTICS • TECHNOLOGY
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16

17. CONTACT GENPACT TO EXPLORE THE
“ART OF THE POSSIBLE”
PROCESS • ANALYTICS • TECHNOLOGY
© 2014 Copyright Genpact. All Rights Reserved.
17

18. About Genpact
Genpact Limited (NYSE: G) is a global leader in transforming and running business processes and
operations, including those that are complex and industry-specific. Our mission is to help clients become
more competitive by making their enterprises more intelligent through becoming more adaptive,
innovative, globally effective and connected to their own clients.
Genpact stands for Generating Impact – visible in tighter cost management as well as better management
of risk, regulations and growth for hundreds of long-term clients including more than 100 of the Fortune
Global 500. Our approach is distinctive – we offer an unbiased, agile combination of smarter processes,
crystallized in our Smart Enterprise Processes (SEPSM) proprietary framework, along with analytics and
technology, which limits upfront investments and enhances future adaptability.
We have global critical mass – 62,000+ employees in 24 countries with key management and corporate
offices in New York City – while remaining flexible and collaborative, and a management team that drives
client partnerships personally.
Our history is unique – behind our single-minded passion for process and operational excellence is the
Lean and Six Sigma heritage of a former General Electric division that has served GE businesses for
more than 15 years.
For more information, visit www.genpact.com. Follow Genpact on Twitter, Facebook, and LinkedIn.
PROCESS • ANALYTICS • TECHNOLOGY
© 2014 Copyright Genpact. All Rights Reserved.
18

19. Thank You
Gianni.giacomelli[at]genpact.com
David.petrucci[at]genpact.com
www.genpact.com/home/solutions/analytics-research/other-analyticsservices/inventory-optimization