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Optimizing Supply Chain Inventory Using Oracle Inventory Optimization

 

In an increasingly competitive and globalized world every organization has to attempt novel methods to stay ahead of the competitors. Enterprises constantly strive towards improving their revenue, profitability and operating margins. It is no more possible for the enterprises to record a positive Year or Year (YoY) growth just by increasing the sales volume and thereby increasing the revenue and profit.  Most of the successful enterprises today have started looking within rather than outward to achieve their growth targets. The focus is on reducing the inventory (safety stocks), carrying and operating costs to improve the profitability without having to impact the productivity. The key to success is to optimize the overall supply chain inventory which reduces the cost of inventory and carrying costs eventually reducing the overall operating costs and contributing to improved margins.

The biggest challenge that looms over the inventory managers in large enterprises is how much inventory we should carry such that we do not compromise on the customer service level. In a global enterprise spanning across multiple geographies with multi-level and multi-layer supply chains, it is not an easy job to decide upon the ideal stocking locations and stocking strategies. With increasing number of competitors retaining the loyalty of the customer is increasingly difficult which leads to high demand variability and forecast inaccuracies. The variability in the lead times committed by our suppliers, transportation contractors and our own production engineers due to the unforeseen events, adds fuel to the fire. Given the circumstances and complexities the use of an IT tool is inevitable. Oracle Inventory Optimization is one amongst the tools available which could assist the enterprise managers in formulating and executing their inventory stocking strategies.

Oracle Inventory Optimization is part of the comprehensive Value Chain Planning Suite of applications from Oracle. The module provides a seamless integration with oracle e-Business suite transaction modules to get a snapshot of the supply chain and master data setups. It also integrates other supply and demand planning modules in VCP for further planning. IO provides the businesses with time-phased safety stock figures under the complex supply chain network.

The key advantage of IO is that it does a multi echelon inventory planning there by optimizing the inventory in the entire supply chain network as a whole in contrast to the conventional inventory planning techniques/tools which does a local optimization of the inventory. Businesses can now plan their entire supply chain network in a single plan. Along with the flexibility in fulfilment lead times and in-transit lead times between various levels of the supply chain network, IO recommends ideal stocking location of the inventory through postponement. Based on the supply chain network, it attempts to pool the risk of variability at higher levels in supply chain to a level lower in the supply chain network which would considerably lower inventory levels and costs without affecting the service level targets.

IO takes into account not just the demand variability and the forecast inaccuracies but also accounts for the variability of your manufacturing, in-transit and supplier lead times. It provides an insight on the contribution of each of those variability towards the overall proposed safety inventory levels.

Illustration 1: Time-phased safety stock analysis in analysis workbench

IO allows the users to perform different inventory simulations with different business objectives such as target service levels, budgets for different category/class of items for different customers/geographies. Inventory planners can perform different what-if scenarios and compare the outcomes related to target safety stock levels, budgets, inventory costs etc in Analysis workbench. The workbench provides the comparisons in both tabular and graphical formats with different types of graphs which are easy to interpret. The users can perform budget, cost break down, profitability analyses along with the safety stock and postponement analysis using the analysis workbench.

Illustration 2: Bar chart comparing safety stock recommendations for different IO Plans

 

Illustration 3: Line chart comparing safety stock recommendations for different IO Plans

 

Once the planners have arrived at ideal safety stocks in line with business objective, this information can be input to Advanced Supply Chain Planning (ASCP) for supply planning.

To conclude, Oracle Inventory Optimization is a very handy tool to enterprise managers which acts both as a strategic tool to decide upon the inventory stocking locations and as a tactical/operational tool once the strategy is formed. Its seamless integration with other Oracle demand and supply planning tools make it easy to implement and use.


Comments

Good insights on Inventory Optimization !!!

Nice article . Keep it up !!!

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