inventory optimization

Inventory OptimizerSmarter way to manage inventory using unique combination of process, analytics and technology

Gianni GiacomelliSenior Vice President, Genpact

David Petrucci Vice President, Industrial Solutions, Genpact

PROCESS • ANALYTICS • TECHNOLOGY 2© 2014 Copyright Genpact. All Rights Reserved.

A Global Business Process Services Leader: Process Transformation and Outsourcing, Analytics, Technology

We help leaders of some of the largest enterprises transform and run their processes and operations, including the very complex and industry-specific

What we do

Unbiased, agile combination of process science, related technology and analytics limits upfront costs and enhances future adaptability

Right critical mass:

• we are large (64,000+ global staff) but our solutions appropriately flexible

• our top management is directly involved in our client partnerships

How we do it

Our impact

We help enterprises to be more competitive by becoming more intelligent: adaptive, innovative, globally effective and connected…

…by enabling tighter management of costs, risks, regulations, and supporting growth

The results: US$22B* of impact for 800+ global clients


THE CHALLENGE


Inventory planning sits at a critical junction of finance, supply chain, procurement and sales

CEO, Board

External Stakeholders

Forecast, Report (financial, non-financial)

Short- and long-term expectations of: Margin, Earnings Growth, Capital

Intensity

Reporting (financial, non-financial)

Performance expectations(financial, non-financial)

Finance

Operations (mfg, facilities)

Procurement Sales & marketing

Budget, KPIs,

allocation and

monitoring of OP/CAPEX,

Inventory

COGS (short and long term)

and respective

risk,EHS risks

Demand and availability of production inputs

(commodities, energy, components),

respective short and medium term price

COGS for pricing (short and medium term),

Demand / Inventory, logistics, supply chain

footprint

Revenue, Working Capital (AR)

Working Capital (AP)

SIMPLIFIED


Increasingly significant inventory challenges lead to..

Sub optimal inventory practices

• Sub-optimal allocation of inventory across sites

• Inaccurate demand forecasting, often up to 50%

• 5-10% wastage due to rapid obsolescence of inventory

Limited data availability and analytics capacity

• Fragmented IT systems across global supply chain adds to complexity and impede optimization

• Lack of a granular and dynamic view of inventory e.g. by customer, product type, cost etc.

Increased supply chain complexity

• Global footprint, more SKUs sourced, shorter response times, increasing cost and demand volatility, frequent changes in end-customer needs

• Managing dynamic cost and service levels requires dynamic and granular inventory management


..working capital pressure, unrealized revenues..

Working capital pressure

• Unnecessary inventory may drive working capital up by 5-10%

• Inventory excess, volatility slows cash flows by 4-5%

…resulting in opportunity cost e.g. more limited investment in sales and marketing, or straight cost e.g. short-term interest spread

Unrealized revenues

• Stock-outs can lead to 2-3% lost sales

• Suboptimal level of inventory can also lead to

‒ slow order fulfillment, increasing cash-to-cash cycle and impacting customer service levels

‒ penalty payments due to contractual obligation


……as well as budgeting, planning and risk management issues

Budgeting and Planning

• Inaccurate and static demand forecasting impairs timely and effective budgeting and resource allocation

• Stock-outs or write-offs lead to high variance of actual Vs. plan

• Wrong working capital assumptions (stock, replenishment, obsolescence) lead to suboptimal investment in other areas

Risk Management

• Obsolescence: obsolete inventory immobilizes cash, write-offs directly hit profit

• Claims: significant customer liability can arise from non- or slow fulfillment

• Regulatory: environmental and waste disposal risk from aged and obsolete inventory in certain industries


THE SOLUTIONS


Robust and modular inventory optimization approach

A B DC E

Visibility management

• Inventory metrics - dashboard including flow and bottleneck visibility

• Financial metrics including working capital projections

• Monitoring exceptions to plans

Multi-criteria inventory

segmentation

• Segmentation based on customer, product and other custom criteria

• Sensitivity analysis and simulation by segment

• Inventory strategies by segment

Planning and optimization

• Replenishment and ordering strategy

• Multi-echelon inventory optimization models

• Advanced forecasting and inventory models

Demand forecasting

• Sophisticated forecasting models (e.g. for intermittent demand)

• Forecast simulation

• Adjustments based on market and business intelligence

Obsolescencemanagement

• Identifying and estimating potential obsolescence risks

• Develop mitigation strategies


Visibility management provides granular and actionable reports to improve planning and monitoring

A

• Comprehensive view of metrics for better informed inventory decisions and risk management

• Better segmentation of inventory which helps prioritize remedial actions

• Improved controllership and effective base lining

• Setting realistic improvement targets

What can be achieved

Delivery approach

Technology

• QlikView, a flexible cost-effective IT platform, for customized dashboards

• Cloud based in-house solution which integrates with existing ERP systems

Analytics

• KPI enterprise dashboards with multi-dimensional drill-downs (e.g. time, location, product family, etc.), trend analysis

On-going services

• Benchmarking (internal/external) on key supply chain metrics

ILLUSTRATIVE

Sample output


Multi-criteria inventory segmentation enables inventory redeployment, increase cash flows and return on asset

B

• Effective inventory redeployment which helps reduce excess inventory and/or re-deploy investment in high performing inventory

• Increase return on assets (ROA)

• Increase in cash flow, revenue and profitability


Delivery approach

Technology

• Cloud based in-house solution which integrates with existing ERP systems; pay for ‘solution’ not ‘infrastructure’

Analytics

• A multi-criteria approach accounts for financial (e.g., gross margin), operational (e.g., velocity of movement) and customer criticality factors (e.g., high volume products)

• AHP (Analytical Hierarchy Process) based algorithm

On-going services

• Segmentation strategy design, periodic modifications based on business changes and execution

Sample outputs

ILLUSTRATIVE


Standardizing demand forecasting improves forecast accuracy, response to market, and planning efficiency

C


Delivery approach

Technology

• Cloud based in-house solution with seamless access to ERP data

• Flexible cost-effective IT platform for granular, frequently updated forecasts

Analytics

• Advanced forecasting models to handle dynamic and intermittent demand reducing forecasting errors e.g. Croston’s, Fourier

• Factoring in market intelligence in the forecasting models enables accurate forecasts

On-going services:

• Demand planning and forecasting at agreed frequency

• Up to 30-35% reduction in forecasting errors

• Up to 20% better planning efficiency through scenario based modeling

• Pro-active response to dynamic market conditions

Sample outputs and templates

ILLUSTRATIVE


Improved planning and optimization helps minimize overall inventory, improve service levels

D

• Customized business policies and strategies, such as optimal safety stock for top-selling products and low-selling products

• Minimize the total inventory costs, including carrying cost, stock-out cost, and ordering cost, while setting adequate service levels

• Effective service level planning through lead time optimization on a continuous basis


Delivery approach

Technology

• Pragmatic technology in partnership with industry leading players e.g. Steelwedge and Kenaxis

Analytics

• A hybrid approach to customized replenishment policies that account for inventory classification, demand pattern, customer criticality and other business-specific parameters

On-going services

• Continuous support in response to business changes using experienced resources

ILLUSTRATIVE


Obsolescence management helps minimizing working capital requirement, manage obsolescence risk

• Minimizing working capital and increasing profitability by releasing cash from excess inventory

• Effective inventory redeployment

• Estimating risk of obsolescence


Delivery approach

Technology

• Interactive dashboards with slicing and dicing capability for

granular and timely visibility

Analytics

• Identifying existing and potential obsolescence

• Risk estimation and mitigation recommendations

On-going services

• Obsolescence management on a periodic basis or at a

product family level

ILLUSTRATIVE

Sample outputs

E


Inventory optimization’s advantages over other approaches

Classic Inventory

Management

Advanced Inventory

Management

Inventory Optimization

Advantage of Inventory Optimization over prior methods

Materials Requirements Planning (MRP)

Constraint based planning (APS)

IO engine

• Better characterized demand uncertainty lead time variability

• Advanced modeling integrates with MRP and APS

Days of supply rules for setting inventory levels

ABC ClassificationProfit-driven analysis

Rationalizes inventory with minimal impact on revenue/profit

Cycle countingMaterials Management System

Closed loop planning and analytics with inventory control via execution management

• More predictable materials flow

• Faster re-configuration of supply chain

• Smoother absorption and handling of unexpected supply or demand swings

No control over production scheduling

Resorts to chase techniques

Optimized considering production and transportation

Better synchronization between production and dispatch


Up to 10% working capital reduction can be achieved through robust inventory optimization

Total improvement up to 10% of working capital

Visibility management

Multi-criteria inventory classification

Demand forecasting

Planning and optimization

Obsolescence management

Near-time KPIs visibility aids quick decisions

Structured techniques for optimal segmentation and prioritize inventory investments

Advanced models coupled with market intelligence to improve forecast accuracy

Proprietary techniques for optimal replenishment and service strategies

Proactively predict, track and manage inventory risks throughout the lifecycle

1.5%

2.5%

3.0%

2.0%

1.0%

Improvement potential


CONTACT GENPACT TO EXPLORE THE “ART OF THE POSSIBLE”


About Genpact

Genpact Limited (NYSE: G) is a global leader in transforming and running business processes and operations, including those that are complex and industry-specific. Our mission is to help clients become more competitive by making their enterprises more intelligent through becoming more adaptive, innovative, globally effective and connected to their own clients.

Genpact stands for Generating Impact – visible in tighter cost management as well as better management of risk, regulations and growth for hundreds of long-term clients including more than 100 of the Fortune Global 500. Our approach is distinctive – we offer an unbiased, agile combination of smarter processes, crystallized in our Smart Enterprise Processes (SEPSM) proprietary framework, along with analytics and technology, which limits upfront investments and enhances future adaptability.

We have global critical mass – 62,000+ employees in 24 countries with key management and corporate offices in New York City – while remaining flexible and collaborative, and a management team that drives client partnerships personally.

Our history is unique – behind our single-minded passion for process and operational excellence is the Lean and Six Sigma heritage of a former General Electric division that has served GE businesses for more than 15 years.

For more information, visit www.genpact.com. Follow Genpact on Twitter, Facebook, and LinkedIn.

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Thank You

Gianni.giacomelli[at]genpact.com

David.petrucci[at]genpact.com

www.genpact.com/home/solutions/analytics-research/other-analytics-services/inventory-optimization

http://www.genpact.com/home/solutions/analytics-research/other-analytics-services/inventory-optimization

http://www.genpact.com/home/solutions/analytics-research/other-analytics-services/inventory-optimization