Inventory Optimizer Smarter way to manage inventory using unique combination of process, analytics and technology Gianni Giacomelli Senior Vice President, Genpact David Petrucci Vice President, Industrial Solutions, Genpact
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
PROCESS • ANALYTICS • TECHNOLOGY 4© 2014 Copyright Genpact. All Rights Reserved.
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
PROCESS • ANALYTICS • TECHNOLOGY 5© 2014 Copyright Genpact. All Rights Reserved.
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
PROCESS • ANALYTICS • TECHNOLOGY 6© 2014 Copyright Genpact. All Rights Reserved.
..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
PROCESS • ANALYTICS • TECHNOLOGY 7© 2014 Copyright Genpact. All Rights Reserved.
……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
PROCESS • ANALYTICS • TECHNOLOGY 9© 2014 Copyright Genpact. All Rights Reserved.
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
PROCESS • ANALYTICS • TECHNOLOGY 10© 2014 Copyright Genpact. All Rights Reserved.
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
PROCESS • ANALYTICS • TECHNOLOGY 11© 2014 Copyright Genpact. All Rights Reserved.
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
What can be achieved
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
PROCESS • ANALYTICS • TECHNOLOGY 12© 2014 Copyright Genpact. All Rights Reserved.
Standardizing demand forecasting improves forecast accuracy, response to market, and planning efficiency
C
What can be achieved
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
PROCESS • ANALYTICS • TECHNOLOGY 13© 2014 Copyright Genpact. All Rights Reserved.
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
What can be achieved
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
PROCESS • ANALYTICS • TECHNOLOGY 14© 2014 Copyright Genpact. All Rights Reserved.
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
What can be achieved
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
PROCESS • ANALYTICS • TECHNOLOGY 15© 2014 Copyright Genpact. All Rights Reserved.
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
PROCESS • ANALYTICS • TECHNOLOGY 16© 2014 Copyright Genpact. All Rights Reserved.
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
PROCESS • ANALYTICS • TECHNOLOGY 17© 2014 Copyright Genpact. All Rights Reserved.
CONTACT GENPACT TO EXPLORE THE “ART OF THE POSSIBLE”
PROCESS • ANALYTICS • TECHNOLOGY 18© 2014 Copyright Genpact. All Rights Reserved.
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.
Thank You
Gianni.giacomelli[at]genpact.com
David.petrucci[at]genpact.com
www.genpact.com/home/solutions/analytics-research/other-analytics-services/inventory-optimization