Multi Echelon Inventory Optimization (MEIO)
According to both Aberdeen Group and AMR Research, Inventory Optimization is currently the #1 supply chain initiative that companies are pursuing to improve efficiency and increase shareholder value. The reason is that it can quickly and effectively increase customer service levels while simultaneously lowering inventory levels over the entire supply chain. It is a relatively low risk high return project with a short implementation time since it can be easily added to your current IT environment as part of Adexa IBP solution.
Adexa’s Inventory Planner optimizes your inventory investment, balancing working capital levels and customer service objectives. It goes beyond traditional inventory planning systems by understanding how to manage multi-echelon supply chains that can employ inventory pooling and postponement strategies.
ERP systems require inventory targets, safety stock levels, and order quantities as inputs, but provide no help in setting these critical values that drive the quality of the planning solution. With millions of possible SKU/storage location combinations, the best your planners can do is estimate these trade-offs at a high level and then apply broad brush rules to fill in the lower level data. The result is wasted money, poor service levels, or lower margins to get rid of Inventory. The Multi Echelon Inventory Optimization (MEIO) capability of the system automatically and expertly identifies these trade-offs, sets the key inventory parameters for each item and location, and feeds it into your current system.
You are probably aware of the pressures from your most demanding clients for 99% + reliability on orders – but you may not be aware of the price you are paying to achieve this using your current systems, in inventory and expediting costs.
The Inventory Planner is an important part of Adexa’s S&OP solution and can be easily added to your existing execution systems, which means that it can be put into place fast, without disrupting your operations or requiring large IT resources.
How it works:
Adexa’s Inventory Planner employs a powerful mathematical optimization algorithm to create a global inventory mix that achieves outstanding customer service levels while simultaneously reducing inventory. Using probability theory and distribution of usage at every level of the supply chain, reliable analytics define the precise relationships between inventory behavior and the target service level for each individual SKU location. The diagram below shows the relationship between cost and service level and how Adexa MEIO optimizes the inventory level at lowest cost level for a given service level.
Adexa’s Inventory Planner solution dynamically generates optimal inventory targets and feeds them back to the Adexa supply chain planning systems or the ERP system. Now the supply chain, finance and marketing organizations have the right S&OP tools for setting global service levels and a powerful optimization engine for operationally delivering on their goals.
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Benefits and Features
- Cost-based optimization to deliver highest service level at lowest cost
- Defines service levels at every level of supply chain from raw material to intermediate buffers and WIP to finished goods and even customer sites as well as supplier sites
- What-if capability to examine different scenarios for cost and delivery performance
- Works at different levels of aggregation or customer grouping. It can analyze by SKU and customer or by customer groups and product groups.
- Fast processing time allows quick results for fast decision making
- The data requirement is minimal and the implementation takes weeks
- It can be deployed as SaaS with little up-front investment
Behind the scenes, millions of SKUs are modeled against variables like volumes, lead times and lot sizes, to establish the right stock level and replenishment rate for each product in each location. The model handles a wide variety of challenges such as promotions, product phase in & phase out, product expiration and shelf life, end of season closure, and sophisticated product launch profiles.
This is a non-technical and quick read guide on Multi Echelon Inventory Planning. It takes a closer look at the issues related to inventory planning and the challenges it brings to managing your supply chain.
Are you a Fabless enterprise? Do you have a virtual but highly complex supply chain? Do you feel wedged between big customers and faraway suppliers? If that is the case, how well are your supply chain planning systems working for you? In this paper we discuss the shortcomings of current Fabless planning systems, and how you can overcome them.
Understanding and forecasting product demand is critical to satisfying customers while maximizing profitability. Accurate demand planning has a rippling wave of efficiencies recognized as reduced inventory levels, shortened lead times, and the optimized usage of manufacturing capacity.
Lean is all about having the right level of inventory to meet customer demand in a timely manner. MEIO enables you to evaluate the trade-offs between service and cost of inventory, understand the drivers of inventory related costs, understand impact of uncertainty in supply chain and finally move to lean manufacturing to reduce/eliminate bullwhip effect.
Just like Cholesterol, we have “good” inventory and “bad” inventory. The good one is the one indicated by a high number of turns which is indicative of agility and fitness that increase your good cholesterol. The bad one is the one that sits and clogs up your supply chain arteries.
Related Case Studies
After analyzing all the available technology options, HLL chose Adexa planning suite, concluding it was the only solution capable of facilitating live customer/supplier collaboration, and integrating demand and distribution planning with production scheduling. Furthermore, Adexa delivered centralized monitoring of the supply chain across the enterprise, and “what-if” analysis to ensure the impact of change, from any source, was visible to all stakeholders and new optimized plans and schedules could be rapidly developed.
Learn how Adexa replaced one of the leading vendors in supply chain at IDT and changed the planning run times from over 23 hours to less than 3 hours. IDT has been successfully using a complete S&OP solutions of Adexa from Demand planning to supply chain planning and inventory optimization for over 7 years.
Since its deployment Adexa has provided one of the leading breweries in Bavaria, with forecasting accuracies of close to perfection leading to a much higher delivery performance to their clients.
South Africa’s Leading Foods Company benefits from Adexa’s Supply Chain Applications with Big Results.
When it comes to supply chain planning, Seagate is one of the best in the world. Learn how Adexa enhanced Seagate’s S&OP process to even be better and more efficient.
This is an introductory video to show how randomness of inventory usage can be deployed in order to accurately estimate the relationship between cost and delivery performance.