IBM Dynamic Inventory Optimization Solution

Executive summary


The goal - Too much or too little?

Effective inventory management has become critical to companies as they strive to improve their customer service, cash flow and profit margins, while meeting the challenges of global competition, product proliferation, shorter lifecycles and demand uncertainty.

At the core of inventory management is stocking control, which ensures that the right amounts of stock — raw materials, subassemblies, spare parts and finished goods — are available to support the company’s production and distribution activities, as well as its cost objectives. To that end, companies must determine and manage to specific service levels so that customers across the supply chain are served in time, in full, to the extent required. Otherwise, stockouts quickly translate into lost sales.

But finding the optimal balance among these factors is not easy, especially with the large volume of Stock Keeping Units (SKUs) that companies maintain today.

For every day your business holds excess inventory you lose money. For every day your business holds too less inventory you lose revenue and in the worst case customers. The IBM Dynamic Inventory Optimization Solution (DIOS), certified for NetWeaver® by SAP, can help you make timely decisions on service levels so that customers are served in time and in full.

The advantage - How to improve your inventory practices

The IBM Dynamic Inventory Optimization Solution is designed to help companies manage inventory to optimal levels—providing the potential to reduce carrying and logistical costs, increase service levels, and improve asset utilization and inventory performance. While not a replacement for existing enterprise resource planning or supply chain management tools, DIOS acts as an extension that helps these solutions work better by providing them with improved safety stock and economic order size parameters.

DIOS can be used to assess inventory reduction opportunities by determining the optimal inventory at the stock keeping unit (SKU) level. It can consider many factors such as service levels, demand variation, supplier lead times, batch size, overage and underage levels, and can be used to identify opportunities for quick hits for reducing inventory or improving service levels.

The benefits - Find the optimal balance in stock control

IBM’s Dynamic Inventory Optimization Solution is a packaged software application designed to assist companies with single- or multi-echelon networks. It can help improve your business on multiple levels.

Strategic

Tactical

Operational

A powerful “what-if” analyzer built into the solution enables your business to quickly and easily examine the impact that changes to service levels, supplier lead times or lot sizes might have on costs, budget and inventory levels.

Business view


The goal - Drive supply chain innovation

Demand uncertainty can compel companies to overstock their inventories—a costly problem. Increasing the inventory base can tie up working capital and increase storage costs. For every day your business holds excess inventory, you lose money. Achieving optimum service levels and fill rates is a challenge. The IBM Dynamic Inventory Optimization Solution (DIOS), certified for NetWeaver® by SAP, can help you ensure that the right amount of stock is available to support your company’s production and distribution activities without sacrificing cost objectives.


The advantage - Why IBM for inventory optimization?

We have developed a body of leading inventory optimization practices based on many engagements of DIOS, and:


The benefits - What’s the optimal balance?

A rigorous analysis of your supply chain management practices, tools and policies can help identify specific actions your business can take to both reduce inventory investment and increase inventory effectiveness, ultimately supporting business growth. The IBM Dynamic Inventory Optimization Solution can help you:


The approach - How a worldwide automotive OEM uses DIOS

To help provide the highest product availability levels for its customers, while optimizing inventory and storage costs of spare parts in the 16 regional warehouses worldwide and the central warehouse, the company selected the IBM Dynamic Inventory Optimization Solution.

For a few hundred thousand products the optimal inventory parameters for each warehouse are calculated to achieve the lowest possible replenishment and storage costs. Additionally, DIOS defines the assortment of each the central warehouse and regional warehouses based on a given total budget optimizing the overall profit. Benefits included:


The financial advantage - Improve your bottom line

In our work with clients, we have found inventory overages that range from 10 percent to 90 percent, with an average 41 percent above optimized levels. Finding the dollars hidden in your inventory requires experience, analytics, optimization and simulation. The IBM Dynamic Inventory Optimization Solution can help your business find those hidden dollars. For example, a study of recent deployments (DIOS) found that 13 out of 14 assessments identified inventory savings of over 30%, compared to existing client levels, while holding or improving projected customer services levels.

Technical details


The issues - Turn analytics into action

Unused inventory is money languishing on the shelf. This means that gaining—and maintaining—strict control over inventory levels can help trim operating costs, loosen cash flow and improve customer service. The IBM Dynamic Inventory Optimization Solution (DIOS), certified for NetWeaver® by SAP, can help your business manage inventory to optimal levels, providing the potential to reduce carrying and logistical costs, increase service levels and improve asset utilization and inventory performance.


The benchmark - Why IBM for inventory optimization?

The IBM Dynamic Inventory Optimization Solution is unique in the industry, utilizing patented safety stock methods that handle a wide range of demand patterns.


The components - Address strategic and operational challenges

The IBM Dynamic Inventory Optimization Solution is a comprehensive, integrated offering that runs in a Microsoft® Windows® environment and includes:


The implementation - A classic supply chain dilemma

In reviewing its operations, MANN+HUMMEL's management team noticed that its central distribution center was "out of balance." The center was carrying excess inventory, but it was missing its targeted customer service levels. The company gave IBM a goal: identify upwards of 15 percent to 30 percent in inventory reductions—freeing up valuable working capital, and keep order line service levels at 97 percent or above for all products. IBM was also asked to study the effect that other factors might have on the facility's inventory, such as shorter production lead times, stock buildups that occur before production holidays and expected increases in market share.

IBM was able to show how MANN+HUMMEL could lower its current stock by 30 percent using DIOS while keeping customer service levels at 97 percent and reducing order lines for production per year by 18 percent. The resulting benefits:


The cost of ownership - Reduce inventory investment

The IBM Dynamic Inventory Optimization Solution is a comprehensive offering that can help you determine optimal inventory levels based on cost constraints, forecasts, demand patterns and service-level requirements. It can also help you:

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Questions? Contact an IBM-SAP specialist.