Today's extended supply chains require a whole new level of nimbleness, flexibility, and visibility to align inventory demand and supply, and at the same time keep a tight rein on and reduce inventory in the pipeline. Standard planning and inventory balancing tools can accomplish inventory alignment to a degree, but many are based on averaging and don't adequately address complex and volatile supply and demand scenarios. A relatively new class of solutions, Advanced Inventory Optimization (AIO) tools, apply highly sophisticated math to fine-tune complex inventory hierarchies to reap whole new levels of savings.

AIO takes a holistic approach to setting inventory targets by simultaneously calculating where and how much inventory should be held across all supply chain network locations, says Steve Banker, service director for Supply Chain Management for research and consulting firm ARC Advisory Group. "AIO offers significant benefits over traditional inventory planning systems that contain a single stage inventory calculator and determine inventory targets for a single supply chain node at a time. Rather, AIO delivers targeted customer service levels with the minimum amount of network-wide inventory." ARC Advisory Group forecasts that the worldwide market for AIO solutions and services is expected to grow at 12.6 percent over the next five years to reach $179.6 million in 2010.

Integrate AIO with Sales and Operations Planning

"From the perspective of a manufacturer, advanced inventory optimization tools allow you to deal more effectively with complex demand profiles integrated with supply and resource constraints," explained David Sievers, Consumer Products and Retail Practice leader for Archstone Consulting, an independent strategy and operations management consultancy.

"These tools are designed to lower inventory in the pipeline, but optimal inventory requires a great deal of synchronization. On the demand side you get variability such as seasonality, and on the supply side, lots of variability in supply constraints. To achieve dynamic control of supply chain inventory, you have to integrate and synchronize ERP data, customer POS data, supplier data, and operational constraints."

Sievers notes that AIO inventory tools offer a lot of potential, but that it's early yet in the adoption curve, and currently there's something of a disconnect between inventory optimization initiatives and concrete results in the pipeline. "Companies are focused on growth, which means they drive a lot of new products and promotions through their supply chains. To date, advanced planning tools have been used in managing this complexity as much or more than in reducing overall inventories - basically, getting product in the right place at the right time to meet sales goals."

In effect it's a Catch-22 situation: AIO needs to support and also be supported by an integrated Sales and Operations Planning (S&OP) process. "Sales and operational planning integrates all major functional areas of a company for effective supply chain performance. AIO tools are often used to improve the efficiency and performance of S&OP and in turn an effective S&OP process is really needed to take full advantage of the technical capabilities of an AIO tool," Sievers added.

Nonetheless manufacturers, Consumer Packaged Goods (CPG) manufacturers in particular, are making substantial investments in AIO. Sievers says that the main drivers behind the investment are that complex CPG or other manufacturing companies need tools to manage inventory in increasingly complex supply chains to ensure support of customer needs and programs, while also aggressively managing working capital.
?BR>Precision Service Inventory Placement

Critical service and equipment providers support complex supply chains with product and component inventories that require immediate availability. KLA-Tencor Corp. (San Jose, CA) is a leading global manufacturer and supplier of process control and yield management products and solutions for the semiconductor and microelectronics industries. The company provides systems, software, and yield management consulting to speed the implementation of customers' yield improvement programs from Research and Development to product delivery.

"Tool availability is mission critical to our customers, who are semiconductor manufacturers," said Joe Chamberlain, vice president of KLA-Tencor's service supply chain. "Part forecasting and positioning is critical for enabling tool service and ultimately, availability." A difficult aspect of the business that his company is in is that the most frequent stocking decision that has to be made is selecting the correct inventory level when the choices are typically either one or zero. "It's an extremely high-mix, low volume stocking environment spread across 38 global stock locations," Chamberlain said.

KLA-Tencor's stock locations occupy a hierarchal network with forward locations within four hours of customers, and regional locations (in Brussels and Hong Kong) within 24 hours, with all locations networked to the main Distribution Center in San Jose. "Fine-tuning the stock in each inventory location is an issue that all service companies grapple with," he noted. "Up until 2000 when MCA brought out its Service Planning and Optimization [SPO] product, the only inventory optimization solutions available were based on averages, or you would let the ERP software do the best it could and then make your best guess after that. Most people try to shoehorn the Service supply chain into an MRP solution, but even with the best service solution available at that time, our performance was well off the optimal curve."

Chamberlain piloted MCA's new SPO solution as well as a leading inventory averaging solution and held what was essentially a bake-off, as he called it. "We began in August 2001, feeding in all the data to both systems. All our customers are mapped to hubs and to stocking locations, basically ERP sales order history, mapping demand by location and customer."

MCA was the clear winner. "It had a very advanced take on pooling and could recognize the relationships between the network's stocking echelons," he explained. "We added three times the number of parts in our forward locations while reducing the dollar investment in inventory, by optimizing the distribution of less-frequently-used high dollar parts from regional Distribution Centers and Distribution Centers. The MCA solution also has a what-if scenario supporting advanced planning strategies."

Chamberlain says the company went live in 90 days and targeted and met a fill rate increase by 10 percent. "We reduced inventory in the field by 16 percent, fill rates by location increased by 18 percent, and regional fill requirements by 4 to 5 percent," he said, citing other benefits to the business of implementing the solution. Chamberlain says the system paid for itself before the company even had officially gone "Live" on it. How? "In the 90 days of implementation, we fed out data to MCA's solution and it gave us back target stock levels by location," he said. "We adjusted our targets and saved the inventory immediately."

KLA-Tencor licenses SPO and continues to reap efficiencies and cost savings, said Chamberlain, "This is the other fun part: We've been able to think differently about what we do, and we are on the leading edge with SPO. We went from supporting one product network to 18 product networks in four years. We go back to MCA and ask for specific functionality as we need it and are now using their tactical as well as strategic tools to determine optimal freight rates, redeployment of inventory, and other things. We're currently working on some ideas together."

Inventory Positioning for Aggressive Growth

The Institute for Operations Research and the Management Sciences recently recognized the dramatic impact of an AIO suite implementation on Caterpillar's $6 billion Building Construction Products division, with an article in its international journal, Interfaces. The article, "Improving and Stabilizing Product Availability and Order Fulfillment at Caterpillar's Building Construction Products Division," discusses how Six Sigma methodology and advanced inventory optimization tools created double-digit improvements in product availability, led to increased orders, reduced average order lead-time by 20 percent, and lowered inventory by 16 percent across Caterpillar's vast global supply chain. The AIO software used was SmartOps' MIPO (Multistage Inventory and Planning Optimization) suite.

MIPO enabled both a rapid return on investment and a long-term competitive advantage for Cat by determining the best possible inventory and product availability - given a wide range of supply and demand variables -- and of prime importance, it also enabled an aggressive customer service and growth strategy.

Caterpillar was dealing with "a number of common industry pain points around inventory and working capital, shortened product lifespan, and on-time delivery," said A.J. Brohinsky, SmartOps' senior vice president. "Even with the scale of Caterpillar products, the company was responding to customer demand with many more product models, resulting in increased inventory complexity. They're now releasing new model updates for backhoes every year or two. Like CPG manufacturers, they are under pressure to grow and produce the next new thing," he noted.

"Even Caterpillar's customers have come to expect product nearly instantly, so Caterpillar is using AIO for finished goods inventory as well as for raw materials and components," he explained. "About five years ago the company initiated an aggressive growth strategy and was determined to provide more responsive order fulfillment through better inventory management, including the use of our MIPO solution. Interesting that at the same period of time U.S. auto and heavy-equipment manufacturers are struggling, Caterpillar hit the revenue jackpot and significantly increased marketshare."

Brohinsky contends that AIO's complexity is overstated. "For companies like Caterpillar, you can get started with a less-than-dynamic process. Simply collecting and analyzing supply and demand data and using that to optimize inventory policies will yield healthy returns. By unlocking the next layer though, which is dynamically analyzing data and optimizing inventory policies, and integrating AIO with ERP for smart sense and respond, your leaner operations and networks can reap significant ongoing returns." He also cites another customer, John Deere, which reduced and avoided over $1 billion in inventory while at the same time doubling sales. "Unilever, Kellogg, and Bayer have similar success stories," Brohinsky says.


Advanced Inventory Optimization Solutions At a Glance

Baxter Planning Systems

Product: Prophet
Prophet by Baxter is a Web-architected service supply chain solution focusing on the after-market, service, repair, and spare parts industries. The product supports the need for rapid customer response proactively by translating forecasts, demand, and material availability into sourcing, inventory location, and repair metrics. It also optimizes warehouses and stocking locations based on service contracts and required response times and tracks and manages global inventory down to the serial number. Prophet uses intelligent scenario modeling to improve service levels and ensure parts availability on a global scale.
Baxter Planning Systems
Austin, TX
512.323.5959

Click Commerce

Product: Service Parts Optimization and Planning
The Click Commerce Service Parts Optimization and Planning solution provides forecasting, advanced inventory optimization, supply planning, replenishment and trans-shipment, reverse logistics, and repair center management capabilities for various industries, including high tech, telecommunications, utilities, aerospace and defense, and commercial aviation. This Web-based global planning solution uses industry-leading best practices to help companies optimize their global service inventory and supply strategies and to achieve optimal product uptime at the lowest cost and highest fill, which results in lower inventories, reduced costs, increased revenue, and heightened customer satisfaction.
Click Commerce
Chicago, IL
212.482.9006

GAINSystems

Product: ICO (Inventory Chain Optimization)
GAINSystems' Inventory Chain Optimization (ICO) for manufacturing, distribution, and repair and service parts helps deliver the highest value, to the customer's request date, at the highest profit. ICO's Cognitive Planning Engine (CPE) drives a suite of optimization planning tools to deliver the most plausible operational and distribution plans, with maximized profit and optimized service levels, while keeping costs at a minimum, thus optimizing your inventory chain.
GAINSystems
Oakbrook, IL
630.505.3030

i2 Technologies

Product: i2 Inventory Optimization
i2 Inventory Optimization enables peak efficiency by helping ensure that desirable levels of inventories are maintained where needed, while excess inventory is eliminated. The software identifies key products and supports inventory policies that will maximize volume and profitability during their life cycle. Based on selected global industry-leader supply chain best practices, i2 Inventory Optimization is based on these five best practices: monitoring customer buying behavior, "ABC" segmentation, postponement, optimized inventory policies, and continuous learning and process improvement. Integrating Inventory Optimization with ERP and supply chain systems institutionalizes these five best practices.
i2
Dallas, TX
469.357.7551


LogicTools

Product: Inventory Analyst 5.0
LogicTools' recently released Inventory Analyst 5.0, the latest iteration of its multi-echelon inventory optimization solution for distribution-focused and inbound/outbound focused manufacturers, retailers, and distributors. Inventory Analyst can be deployed strategically and also for ongoing setting of safety stocks and inventory levels in operational environments. Functionality includes the ability to set multiple optimization objectives such as inventory policies for maximizing profit, revenue, and fill rates; or minimizing cost subject to min/max, or minimum average fill rates, and working capital constraints. Inventory Analyst also enables demand profiling and what-if inventory optimization scenarios. Enhanced visualization capabilities graphically display end-to-end supply chain or bill of material for data validation and evaluating inventory outputs.
LogicTools
Chicago, IL
888.265.4706

Manhattan Associates

Product: Demand Forecasting
Manhattan Associates' new standalone Demand Forecasting?(a component of its Integrated Planning Solutions) helps companies balance inventory levels with customer demand by analyzing user-defined demand cleansing, seasonal profiling, and exceptions processes to optimize demand history and create more accurate forecasts. It enables manufacturers to proactively plan for their retailer customers' needs, reduce inventory levels, and decrease stockouts. Demand Forecasting includes demand-cleansing functionality, which optimizes demand history by smoothing large volumes of historical data. The cleansing removes promotional activities, entry errors, and markdowns, which can cause out-of-the ordinary spikes or dips in sales patterns. In conjunction with demand cleansing, seasonal profiling identifies trends and evaluates seasonality to recommend seasonal profiles based on business-defined policies. Advanced Exception Management automatically detects and self-corrects forecast issues. Users can create sets of exclusion rules that meet their business criteria and preferences and assign them to forecast exception policies.
Manhattan Associates
Atlanta, GA
770.955.7070

Manugistics

Product: Service and Parts Management (S&PM):
Manugistics S&PM solution allows asset operators and parts suppliers to optimize their supply/repair chains. The solution offers both strategic and tactical planning capabilities. For strategic planning, Network Design and Inventory Policy Optimization enables long term planning around facility location and composition. Additionally, part stocking decisions are optimized across criteria including cost, constraints, and service objectives. Tactically, the solution uses forecasting and distribution algorithms designed specifically for the S&PM environment.?

Product: Inventory Policy Optimization (IPO) - GA&D (Government, Aerospace, and Defense)
Manugistics NetWORKS IPO GA&D is designed to understand the relationships between the multi-indentured structure of a complex piece of equipment and its system availability requirements in an operational environment. IPO uses algorithms to intelligently link budget constraints, availability, and system readiness to optimally establish inventory policy for repairable and consumable parts. IPO generates spares plans for budget constrained and unconstrained decision support within a scenario based planning environment.

Product: Inventory Policy Optimization (IPO) - CG (Consumer Goods)
Manugistics NetWORKS IPO CG is designed to perform trade off analysis between service level and cost for manufacturers and distributors of consumer goods. The solution optimizes inventory stocking policy across a multi-echelon supply chain thereby, achieving customer service targets while driving down carrying costs. IPO optimizes stocking policies for multiple service targets across customers, regions, specific SKUs,and categories. PO generates constrained and unconstrained plans within a scenario based environment.?
Manugistics (recently acquired by JDA)
Rockville, MD
301.255.5000

JDA
Scottsdale, AZ
480.308.3000

MCA Solutions

Product: SPO (Service Planning Optimization)
 SPO is a Web-based suite of advanced inventory planning, forecasting, and execution solutions that give companies the ability to manage and monitor inventory levels of mission-critical materials. It meets the demanding requirement of the service parts planning process, reduces operating costs and provides global, real-time visibility throughout the extended service supply chain. The first commercial software to optimize assets in a multi-echelon service supply chain network, it supports collaborative planning, forecasting, and execution processes by linking with a company's enterprise and customer relationship management systems.
MCA Solutions
Philadelphia, PA
215.717.2180

Optiant

Product: PowerChain Inventory
Optiant's PowerChain Inventory, part of its PowerChain suite, supports strategic and tactical planning of complex supply chains. PowerChain Inventory helps companies establish an optimal inventory strategy and policies to reduce inventory costs and increase service levels and profits. It reduces initial inventory investments and write-off risks while lowering recurring inventory holding costs, enabling greater inventory visibility and increased collaboration across the entire supply chain. Functionality includes the ability to compare and evaluate multiple business scenarios quickly and enable collaborative decision-making between organizations, suppliers, distributors, and customers. Opiant is an SAP partner, but PowerChain Inventory is compatible with other ERP systems as well.
Optiant
Burlington, MA
781.238.8855

Servigistics

Product: Service Parts Management
The Servigistics Service Parts Management solution is built on a scalable, flexible, open, Web-native architecture that provides visibility and connectivity for key stakeholders across the extended service network. The Servigistics architecture integrates with, and extends the capabilities and ROI of ERP, CRM, and legacy systems by providing a decision support architecture that leverages investment in existing systems. The company's solution has been designed to enable companies to drive profitable growth and improve corporate performance by effectively pricing service parts and service contracts, streamlining service operations to drive reduction in overhead and ongoing operating costs, reducing investment in inventory to increase working capital, and improving part availability and customer satisfaction and recapturing incremental revenue from lost sales and asset down-time.
Servigistics
Atlanta, GA
770.565.2340

SmartOps

Product: MIPO (Multistage Inventory and Planning Optimization) suite
SmartOps' MIPO product enables companies to more effectively manage the uncertainty of complex, multi-stage supply chains to achieve rapid return on investment and long term, sustainable value. MIPO dynamically generates optimal inventory targets for each stage of the supply chain while providing visibility into each inventory requirement -- including safety, cycle, pre-build, pipeline and merchandising stock requirements, by item or SKU -- to meet desired service levels. MIPO's optimized inventory targets serve as critical inputs for enterprise resource planning and advanced planning & scheduling systems, so they deliver better intelligence for inventory planning and execution.
SmartOps
Pittsburgh, PA
412.231.0115

Systecon

Product: OPUS10, v.6

Systecon's OPUS10 version 6 is designed for maintenance and service optimization applications related to aerospace, defense, and mass transit industries. Applications range from submarines, missiles, remote control systems, offshore platforms air traffic control systems, Singapore Mass Transit, and Australian naval vessels. OPUS10 performs logistics support analysis and spares optimization. Its powerful modeling capability makes it a most valuable tool in studies and decisions involving trade offs between: design factors, repair policies, and alternative logistics support structures. It has enabled cost savings of 30 percent.
Systecon
Stockholm, Sweden
46.8.459.07.50

ToolsGroup

Product: DPM (Demand Parts Management)
ToolsGroup's DPM offers inventory optimization software for demand-driven supply chains, from finished goods assembly to the end consumer/retail shelf. DPM helps companies grow revenue by achieving "near perfect" customer service levels, while cutting inventory by up to 40 percent. DPM includes demand sensing and modeling, mix optimization, and responsive replenishment. These modules combine to create a dynamic, highly automated inventory optimization solution across the supply chain. ToolsGroup offers a cost-effective modular approach for fast implementation and quick results, by license or on demand. DPM is compatible with nearly all ERP and Supply Chain suites including ones from SAP, i2, Manugistics, JDA, Oracle, and JD Edwards. The company offers perpetual licenses and a new DPM on Demand for even faster time-to-benefit.
ToolsGroup
Cambridge, MA
617.494.0080

[editor's note - the information above was provided by the vendors themselves.]