Augmenting Network Design with Inventory Optimization. Dr. John Bell Dr. Sean Willems

Transcription

1 Augmenting Network Design with Inventory Optimization Dr. John Bell Dr. Sean Willems

2 Supply Chain Network Design Building a supply chain includes network decisions about the geographic location and size of facilities Decisions are global in nature Have to be revisited every 1-2 years Include wide array of variables and data Supported by analysts and software systems Implementation is often most difficult stage Impacts transportation and inventory decisions

3 Traditional Location Analysis Facility location and network models were often usually independent from inventory optimization Solutions decentralized with too many locations Computer capabilities and algorithm development have proven ability of hybrid approaches Location-Inventory Problems

4 Joint Consideration of ND & IO Current models and algorithms can simultaneously consider Network Design and Inventory optimization World-Class firms have implemented joint Network Design & Inventory Optimization approaches Consider the cost, service and risk implications Understand the influence of multiple echelons of inventory

5 Multiple Classes of Inventory There are several classes of inventory: Safety stock Due to forecast, supply and manufacturing variability Anticipatory stock Cycle stock Early arrival stock Marketing stock Obsolete stock Pipeline stock Prebuild stock Promotion stock We should not treat all inventory as equal We need to measure inventory by class in order to improve supply chain performance Safety stock inventory is the most difficult to solve

6 Multi-Echelon Inventory Optimization Spans the Entire Supply Chain Inv SUPPLIER PLANT Inv Inventory Op.miza.on DC STORE Inventory is optimized across the supply chain, recognizing interrelationships between echelons This results in less inventory overall, and lowers supply chain costs Allows for more informed supply network decisions

7 Multi-Echelon Modeling Illustration Three potential inventory policies for a simple serial supply chain Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Sprinkle it everywhere Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Get me fired Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Optimal

8 Real Supply Chains Are Complex Outsourcing production is an option Product can be converted Multiple classes of demand exist

9 Real Chains Are Very Complex Procure Reynosa Finished Goods 51 Deploy Subassembly 67 VMI (K) Procure Reynosa Subassembly PH 57 Procure 43, 66,

10 Initial Beauty M-E Implementation: Cosmetics The Cosmetics Supply Chain M-E Model Blank WIP Raw Materials Intermediate Subassemblies Colored WIP Packaging Materials Finished Good Packing Ship to Canada DC Ship to US DC Promo.on Demand US Customer Demand Byron Alvarez Cosme.cs Planner

11 How Did Multi-Echelon Do It? Safety Stock Days Previous Single Stage Process New Mul. Echelon Process Op.mizing levels and placement of safety stocks Resulted in lower material and finished good days on hand; higher work- in- process days 0 Matls WIP FG US DC FG CAN DC Safety Stock Dollars ($K) Previous Single Stage Process New Mul. Echelon Process Yielding a significant reduction in dollar investment Matls WIP FG US DC FG CAN DC

12 Replenishing from China direct from US vs. sourcing from US to EU to China Eur Dist US Mfg China Demand When does it make sense? What s the impact?

13 Strategic Model Example

14 Replenishing from China direct from US vs. sourcing from US to EU to China

15 Postponement: Replenishing Bulk to China from US & Packaging in China Bulk to China

16 US China Replenishment Scenarios 15, , Cycle Stock Pipeline Stock 13, , Safety Stock ($) 11, , , , , , , , $14,062 $2056 $11,696 $1862 $10,915 $1778 3, , , EU Supplies China US Supplies China (FG) US Supplies China (Bulk) Logility, Inc.

17 US China Replenishment Scenarios 15, , Cycle Stock Pipeline Stock 13, , Safety Stock 11, , ($000) 9, , , , , $2,560 $865 4, , , , EU Supplies China US Supplies China (FG) US Supplies China (Bulk)

18 Questions to consider How do you think about network design and inventory optimization today? How can you jointly leverage ND and IO? Where is the biggest opportunity in your supply chain? Is it cost reduction? Is it service improvement? Is it resiliency?

19 Final Thoughts What? Consider joint Network Design and Inventory Optimization approaches in your next SC redesign Why? The cost, service, and resiliency of your supply chain can be greatly improved How? Internal and external approaches are available

20 Augmenting Network Design with Inventory Optimization Dr. John Bell Dr. Sean Willems