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Optimize Inventory Planning and Boost Customer Service with SAP IBP

SAP IBP for Inventory is a sophisticated tool that offers numerous advantages to businesses seeking to optimize their inventory management.

  • Optimal Inventory Placement: SAP IBP for Inventory ensures that inventory is positioned where it is needed most. By analyzing various factors such as demand variability, forecast error, and supply uncertainties, the system recommends optimal safety stock levels across the supply chain.
  • Reduced Holding Costs : The solution helps businesses minimize inventory holding costs by optimizing service levels and avoiding stock-out situations, which can be costly and damaging to customer relationships.
  • Maximized Profits: By balancing customer satisfaction with profitability, SAP IBP for Inventory provides full visibility of the supply chain network.
  • Advanced Stochastic Modeling for Precise Safety Stocks: SAP IBP for Inventory uses stochastic mathematical algorithms to determine the lowest possible stocking cost. This approach provides planners with precise stocking targets at an item-location-time period level of granularity, which is essential for effective inventory management.
  • Improving Customer Service with Inventory Optimization: By determining the optimal amount of safety stock to hold at stocking locations, SAP IBP for Inventory helps businesses maintain desired customer service levels. This optimization is crucial for businesses aiming to keep their customers satisfied and loyal.

Infosys Approach to Inventory Optimization and Safety Stock

Successful inventory optimization projects require leadership level buy in and considerable change management efforts. These projects can quickly turn into a ’blackbox’ problem where trust can be lost if the results are not well explained. Infosys has developed a framework to explain the results of inventory optimization. We have identified seven key factors that impact safety stock and using our excel simulator in conjunction with scenario planning in SAP IBP, we can directionally explain the results of the IO Engine results by tweaking these factors.

Infosys approach for Parameter Tuning & Results Validation for SAP IBP IO

Inventory Optimization Run

We have seen that the success of inventory optimization lies in tracking the adaptability of the IO Engine results within planning systems like ERPs/IBP. A clear differentiation between different levels of intervention over the IO Engine results helps track and differentiate value adding inputs from the overrides provided by planners for extra caution.

Three-Layered Safety Stock Refinement Process

We propose a three-layered safety stock refinement process to derive the optimum safety stock. This approach has proven useful in our experience. This approach builds and refines safety stock in three stages as shown in the diagram:

Infosys Proposed 3 Layer Refinement Process for Arriving at Optimum Safety Stock

Inventory Optimization Run
  • Base Safety Stock: Take the base of Safety stock from the IO engine, which is based on parameter settings
  • Business Rules Refinement: Refine safety stock by applying special business rules which are specific to business / business units such as shelf-life planning and other minimum/maximum coverage requirements
  • Short Term Advantages: Apply short-term safety changes in specific time buckets to tackle immediate business issues (e.g., COVID) to arrive at the final safety stock While the output from IO is just the safety stock and the target stock (maximum stock), multiple inputs contribute to the algorithm, as shown below. Infosys has developed a repository of user stories for each of these parameters and inputs, along with a process house and other assets to support your inventory optimization journey.

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