Inventory Optimization

Founded : 1837
Sales : 76.7 Billion $
Countries : 180

Products and 200 others

Group 2
Srustijit - 18BM6JP05
Garima - 18BM6JP15
Sambit - 18BM6JP18
Pratik - 18BM6JP41
Ankit – 18BM6JP48
 P&G : An Overview
• 3 GBUs
• Beauty and Grooming (26.3 Billion $) • P & G uses Horizontal Process Network(HPN)
• Household Care (37.3 Billion $) • Span across all of P & G
• Health and Well Being (14.4 Billion $) • Manage Execute standard work processes across business
operating units.
• Categorial supply planning HPN – optimize supply
network’s capabilities and also deliver low cost products

• HPN includes GBU representatives, IT service managers,

technical experts
• Planners are trained to use planning tools and systems to help
meet business objectives.
What’s an Echelon ? How Different is Single from Multi ?
Export
From Suppliers Factory Warehouses
Locations/Retailers

Shipped
Finished
Raw Materials SFG, WIP Finished
Goods
Goods

Local
Packaging Intermediate Promotional
Promotions
Materials Subassemblies Items
& Artworks
20% 30% 50% 70% MRP-100%
Supply Chain’s Downstream (Direction of Value Addition)

 Single echelon inventory optimization aims at independently optimizing inventory at a particular

echelon or level of the SC.
 Multi-echelon inventory optimization looks at inventory levels holistically across the supply chain
while taking into account the impact of inventories at any given level or echelon on other echelons.
 Inventory Management at P&G
• Workforce of 5000 managing 500 different supply chains.
• Total supply chain network: 145 P&G owned manufacturing facilities, 300 contract manufacturers
6000 unique product-category market combinations.
• “One-fits-all” Strategy is not optimal.
• Different Businesses  Different Modelling Methods/Tools  To determine correct inventory levels
• Deciding criteria for choosing type of inventory management method are complexity and operating characteristics.

Basic Inventory Concepts

 Decision Tree for Inventory Tool Selection
One FIM
# of P & G DCs DC (Single, FG)
P&G
XIM
Two Stage
(Central WH+ JITs)
Distribution

Custome
Finished r or P &
Customer RIM
Goods G (Single, Retailer)
Set safety
stock target FG or
Raw/Pack MIM
Raw
Pack (Single, Factory RM/PM)
Single site or 1
plant to many Exception Based
DCs Review Monthly/Weekly
VITO
Frequency (Multi, Logility)
Complexity
Multi-echelon
Strategic and
(Multiple site Tactical Analysis VISO
Networks, Large (Multi, Logility)
no of SKUs)
 Single Stage Inventory Models
• Simple but robust models, that considers one echelon/stage at a time. • Technology platform: spreadsheets
• Coverage by region:
Americas Europe/Asia/Africa Overall

50 >80 60

Case Study (Fabric & Home Care, Western Europe)

• 36 percent reduction in inventory.

• 99.5 percent fill/service rate achieved.
• In spite of increasing complexity, number of finished goods has doubled from 2500 to 5000.
• This model makes it difficult to optimise true Multi Echelon inventory policies.
 The Beauty & Grooming GBU : It’s Need for
Multi-echelon
Complexities with the GBU
 Huge SKU no.s, low on sales volume/SKU
 Lower unit volume per item, higher sales value/item
 Customized Packing for each SKU
 Implies High Volatility & High Std Deviations in Demand Numbers

Leveraging the success in North America’s Cosmetics

 Portfolio: 1300 standard SKUs, 500 promotional SKUs, 4000 RM-PMs
 4000-5000 stage nodes, 6000-10000 arcs (edges representing BOMs/STNs)
 Applied Logility Viso multi-echelon software after single echelon reached a saturation
 Lead times (7 days-8 weeks), production times (1-2 days), review periods (7-28 days), logistics (upto
7 days) taken into consideration while maintaining 99.5% Service Rate

Result
 Multi-echelon in Cosmetics Liquid-Makeup Safety Stock lead to inventory Reduction by 7% by
tonnage (against total 9% reduction) and 17% by $ value.
Multi-echelon Inventory Optimization at Inventory : Liquid Cosmetics
75 FGs, 500 stages(nodes), 700 arcs

Nodes

 Each level or stage is

an echelon
 The arcs (edges) depict
material flow on
BOMs/STNs
Multi-echelon Benefits
 |N| Generalized Service Model algorithm
min ∑ c (SI S )
j j, j So what’s the Intuition ?
j=1 ith jth
node node
kth
node
min∑ Pj*Qj
Constraints : Sj-SIj ≤ Tj ∀ j ∈ N j
SIj-Si ≥ 0 ∀ (i,j) ∈ A  Pj – Perceived Value of stock at
S j ≤ sj ∀ j ∈ N stage j
Sj, SIj ≥ 0, integral ∀ j ∈ N  Qj – inventory tonnage at each
Lead Time at stage j stage as a function of Lead time
Tj and Service Time(SIj & Sj)
Outgoing service time of stage j
Sj .
Longest outgoing service time quoted to stage j
SIj
Maximum outgoing service time at stage j
sj
GS model LIMITATIONS:
1. The cost functions at each stage mayn’t always have a single local minima or be monotonous.