Case Study

Leveraging a Unified Network and Inventory Optimization Model for Rapid Safety Stock Analysis and Adjustment

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Leveraging a Unified Network and Inventory Optimization Model for Rapid Safety Stock Analysis and Adjustment

Challenge

A leading global chemical company has a heavy focus on cycle stock due to its months-long cycle times, and needed a way to rapidly answer what-if questions about how changes in demand variability would affect service levels. The company needed a formal process for evaluating safety stock levels and determining where inventory needed to be added and where it could be reduced. Overall, it lacked a repeatable method for viewing inventory and service levels at a high-level across its global network to quickly identify exceptions and patterns of change.

The company’s existing inventory optimization solution was overly complex, requiring excessive maintenance and IT involvement to do the required SAP extracts. A single model run to evaluate safety stock took an entire day and output data was difficult to export, interpret and share.

Solution

The chemical company was already using LLamasoft modeling technology for network optimization and was able to use existing models to springboard into inventory analysis. Analysts quickly realized that the process of building the inventory model was much less complex and faster than with the company’s existing solution. Within a few months, the
company had an inventory optimization model that provided the same level of detail, but with a much quicker and simpler process, thanks to less complex input requirements and the seamless connection to the existing validated LLamasoft network model.

In addition, the LLamasoft tool automatically classifies demand based on multiple distributions to differentiate slow movers versus fast movers, instead of assuming smooth/normal demand.

The time and effort required to build the model and get answers is much improved—company analysts can now:

  • Circumvent the IT requirement by easily extracting SAP order history and product and facility master data directly into the model with LLamasoft’s data analytics tool
  • Complete the inventory model in 10 minutes
  • Run sensitivities on service levels to better understand incremental inventory holding costs to improve service level
  • Understand and quantify how much is expedited as a result of not having the right amount of safety stock to meet customer service levels
  • Easily analyze demand variability, lead time, etc. in charts and graphs for management review
  • Break down results by product family and region to identify exceptions and patterns of change—without the massive text file outputs of the former software solution

Results

With unified network and inventory optimization models, this company was able to reduce overhead and complexity of model building and reporting and get the same quality of results as from the more complex solution. Analysts can use this unified model to understand how a change in network structure would impact cycle stock and safety stock levels and evaluate the optimal strategy for an efficient supply chain.

“It’s very useful to be able to run this model to do a quarterly ‘gut check’ of our network to ensure we’re maintaining our service levels, which is a primary differentiator for us,” said the company’s global demand manager. “The underlying logic is sophisticated, yet transparent and credible.”

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