ASCP

Strategic inventory levels
to satisfy customer
requirements
Northern
Cal OAUG Training Day
Sridhar Hoskote
Partner, Inspirage
LLC
January
21, 2009
Copyright Inspirage LLC, 2009. Private and confidential. All rights reserved
Page 1
The Oracle APS and Demantra Specialists
Agenda
Introduction
Business Challenges
Supply Chain
Need for System Support
IO implementation
Integrating IO with constrained ASCP
Cutover process
Results and Summary
Q&A
Page 2
Inspirage is recognized as a premier consulting firm

specializing in Oracle Advanced Planning and Demantra
Founded by former Oracle APS Product Development Senior Managers
Applications.
responsible for design and development of many APS applications
Strategic partnership with Oracle product development in

Areas of new product design and development
Preferred partner for training other System Implementers
Recognized as subject matter experts within the Oracle APS community
Numerous highly successful reference clients
Leadership role in OAUG special interest groups for Advanced Planning and
Demantra
Contribute to knowledge sharing by presenting in forums such as OAUG and
Oracle Open World conferences
Page 3
Inspirage Customers
Page 4
Inspirage provides the complete expertise of the integrated Oracle

forecasting and supply planning solutions
Advanced Planning
S&OP
Monitor plans to actual, collaborate,

and respond
DM
Demand
Management, Stats
Forecast, Multi-tier
Collaboration
Workflow, AF/DM,
Chaining, Member
Management
CP
Trading Partner
Collaboration
SNO
Strategic
Sourcing
IO
Inventory
Strategy
PS
Detailed
Scheduling
GOP
Schedule,
Un-schedule orders
Schedule orders
Collect Planning
Data
ASCP
Consume
Forecast
Constrained /
Optimized Planning
ERP
Release orders
Distribution/ Service
Parts Planning
SO History
Page 5
Introduction
Source Photonics designs and manufactures wide variety of

optoelectronic devices
Broad product line of PON, Telecom, and Datacom transceivers
One of the largest volume suppliers of non-VSCEL based
transceivers in the world~ 4-6M per year of 1310nm and 1550nm
transceivers
Page 6
2006
2007
Summer 08
November 08
Gl
o
Pr ba
om l O
is rde
in r
g/
Pi
lo
tC
P
iz
at
io
n-
In
v
Ph ent
as or
e yO
2
pt
im
iz
at
io
nIn
v
Ph ent
as or
e yO
1
pt
im
Or
pr acle
od E
uc xe
ts cu
tio
n
Co
ns
tra
in
ed
AS
CP
Oracle footprint
Feb 09
Implemented Oracle E business suite in late 2006 and early 2007

Implemented constrained ASCP in 2007
Inventory optimization with demand variability in Summer 08
Integration of IO and ASCP, supplier LT variability in November 09
GOP is slated for early 09
Page 7
Business
Challenges
Page 8
Business Challenges
Customers
Scheduled Ship
Date
Request Date
14 wks LT
How much inventory do you need to satisfy request dates?

Where do you keep those inventories?
How do deal with huge lead time requirements?
Page 9
Business challenges
Not able to satisfy requirements by request date with
current inventory levels
Need to determine and add inventory strategically
Need flexibility in using common materials into large
number of finished goods
Customers do not always provide enough lead times
Lead times can be up to 14 weeks
Page 10
Business challenges
Forecast accuracy and demand stability are quite poor
Supplier delivery performance contributes to
uncertainty
Need to rely upon key trading partners to fulfill
demands
Exploit the natural build lead times to push inventory
away from finished goods
Complex supply chain structure makes it very difficult
to plan for inventory levels
Page 11
Supply Chain
Page 12
Characteristics of supply Chain

Generally 5 to 8 levels deeps
Goes across 3 organizations
Each end item has anywhere from 100 to 400 components
Relatively short manufacturing lead times
Long material procurement lead times
Extensive commonality of components in each family of end
products
Same common materials can be packaged into a vast number of
finished goods
Page 13
Simplified supply chain BOM
Page 14
Products fan out
Page 15
Need for System

Support
Page 16
Several critical complexities to consider

Time varying
Inventory
Multiechelon
Y
B
A
A
I
E
D
J
Pooling
Postponement
Page 17
Need for programmatic inventory calculation

Consider legitimate drivers for inventory requirements
such as Service Levels
Consider the entire supply chain BOM structure
Consider uncertainties namely demand uncertainty
and supplier delivery performance
Consider appropriate lead times at various levels
Consider dependent demand and propagate need for
inventory across the supply chain
Page 18
Modeling
Page 19
Modeling
MAPE (Mean Absolute Percent

Error) for each product
line
Demand Variability
Via simple
probability
distribution
of lateness
Lead Time
Variability
Strategic
Strategic
Inventory
Inventory
Service
Levels
Primary driver for setting this

was based on OTD
Supply Chain BOM

Supply Chain BOM using BOM,
sourcing, routings
Page 20
Modeling
Demand Uncertainty
MAPE calculated by comparing history to actual
Default MAPE where there was no history
Varied MAPE to calculate reasonable inventory levels
Supplier Delivery Performance
Set up dummy supplier
In IO plan all purchased parts were sourced using above
dummy supplier
Lateness distribution associated with dummy supplier
Page 21
Implementing
Inventory
Optimization
Page 22
Important set up for IO to run

Safety Stock method - MRP planned % vs non MRP planned
Lead times Processing, pre-processing, post-processing,
intransit
ABC classes - plan selects items based on ABC classes
Alternate BOMs and Substitutes made a strategic decision to
not consider alternates and substitutes
Forecast error measure MAPE fed at item level
Supplier LT variability
Single supplier source for all buy items

Establish ASL relationships
Feed distribution st supplier level
Page 23
Other significant set ups
Used internal cost roll up instead if actual costs

Set up Weights to increase the rolled up costs
Carrying costs was set to a global value
Set postponement factor to 20
Used profiles to prevent SS calculation on
alternate paths and substitute items
Used 24 by 7 calendar in all orgs to smooth out
safety stock requirements
Page 24
Plan options
IO runs with 36 weekly buckets and no period
buckets
Penalty factors chosen to derive stable results
No existing supplies or scheduled receipts
considered
DP scenarios used to feed MAPE numbers
into the plan
Enforce service level plans
Page 25
Enhanced postponement
X
X
A
LT= 65
days
LT= 5
days
LT= 65
days
LT= 5
days
Postponed SS is in
matched sets
Both A and B will get SS
based on max LT which is A
NORMAL POSTPONEMENT
Postponed SS is based on
LT for each component
A and B will get SS based
on their LTs
ENHANCED POSTPONEMENT
Source Photonics used Enhanced Postponement

Page 26
ASCP plans with IO as input

Constrained ASCP plans with decision rules was already in
production
Introduced transient (temporary) safety stock requirements using
IO
Objective was to introduce IO as input without significantly
affecting plan quality (lateness, inventory etc.)
Integrating ASCP and IO was a significant effort
Safety Stocks vary across the horizon and finally disappear
(transient)
No dedicated supplies created to satisfy SS requirements
The actual supplies are pulled forward instead of creating new
supplies. Needed to make room for this effect
Page 27
Propagated service levels

IO calculates propagated Service Levels to derive SS
for buy items
With large number of items at a given level the Service
Level tends to go to 99.99% very fast
Beta factor allowed for tempering the above effect
Source photonics used this factor to fine tune SS
levels for buy items
Page 28
Plan facts
Plans very intricate and a long supply chain up to 120
days cumulative lead time.
Each end item can have to 300 items
We avoid planning all substitute and alternate paths in IO
Demand variability modeled via MAPE measure
Postponement used to push safety stocks through all levels
of BOM (max of 8 levels)
Used enhanced postponement logic lead time specific
safety stock for sibling items
We use supplier lead time variability to model delivery
performance
Page 29
Plan facts
Enforce Service Level plans
IO plans approximately 7300 items in 2.5 hours
Safety Stocks calculated for about 4000 items
Plan horizon is 36 weeks
Demand variability specified via MAPE
Includes both demand and supplier LT variability
Do not consider scheduled receipts
Page 30
IO Integration with
Constrained ASCP
Page 31
Steps taken to make ASCP work

Sized the requirements from safety stocks to make it true
transient safety stock
Added additional internal resources to accommodate both
regular demands and safety stocks requirements
Used profiles to minimize shared supplies between regular
demands and SS requirements
Smoothed safety stock requirements such that system had
a chance to consume all supplies within plan horizon
Page 32
Factors considered to fine tune ASCP
Lot for Lot

Number of supplies to be scheduled
Number of times to re-schedule shared supplies
Supplies used to satisfy safety stock
Demand and Supply Window widths
Use Optimization Phase dates for pegging
Split planned orders to perform safety stock pegging
Page 33
Cutover Process
Page 34
IO plans
Plans with postponement

Demand variability only
Plans with no
postponement,

Demand and supplier lead
Copyright Inspirage LLC, 2009. Private time
and confidential.
All rights reserved
variability
Page 35
Explaining output from IO

Days of supply needed to hold/support manufacturing activities
Instead of verifying exact SS calculations, concentrated on
factors that could affect SS and sensitivity of SS due to each
factor
Role of lead times in arriving at SS
Importance of Service Levels in calculating SS
Important set up issues that could affect SS ABC classes,
SS method, lead times, types of lead times
Page 36
ASCP plans
Constrained ASCP
Constrained ASCP
Plans
Plans
Demand and supplier lead

time variability
Page 37
Adoption of IO into ASCP plans

Initially fed SS for only buy items into ASCP
Provided a gradual ramp up of SS to give a chance for
manufacturing and other resources to react
Made SS requirements transient to avoid pegging to
excess
Cut off SS requirements after the longest cumulative Mfg lead
time
Set SS to zero for a few buckets prior to end of demands
Page 38
Results &
Summary
Page 39
Results
The overall safety stock planned is in line with expectationsapproximately 6 weeks of inventory in the system
The inventory value matches with the current levels in plan with
no postponement
Plans with postponement shows improvement up to 20% in
inventory value
Satisfaction of orders by customer request date is expected with
a comprehensive execution of IO plans
Page 40
Summary
Needed a comprehensive inventory planning system to plan
and satisfy requirements by request dates
Utilized Oracle Inventory Optimization to plan inventory
levels
Used demand and supplier lead time variabilities to
influence safety stock requirements
Significantly improved customer fulfillment and inventory
reduction
Page 41
Question & Answers?
Sridhar Hoskote
510 676 6753
Sridhar.hoskote@inspirage.com
Page 42

ASCP

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ASCP

Uploaded by

Copyright:

Available Formats

Strategic inventory levels

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

Inspirage is recognized as a premier consulting firm

Strategic partnership with Oracle product development in

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

Inspirage provides the complete expertise of the integrated Oracle

Monitor plans to actual, collaborate,

The Oracle APS and Demantra Specialists

Source Photonics designs and manufactures wide variety of

The Oracle APS and Demantra Specialists

Implemented Oracle E business suite in late 2006 and early 2007

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

How much inventory do you need to satisfy request dates?

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

Characteristics of supply Chain

The Oracle APS and Demantra Specialists

Simplified supply chain BOM

The Oracle APS and Demantra Specialists

Products fan out

The Oracle APS and Demantra Specialists

Need for System

The Oracle APS and Demantra Specialists

Several critical complexities to consider

The Oracle APS and Demantra Specialists

Need for programmatic inventory calculation

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

MAPE (Mean Absolute Percent

Primary driver for setting this

Supply Chain BOM

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

Important set up for IO to run

Single supplier source for all buy items

The Oracle APS and Demantra Specialists

Other significant set ups

Used internal cost roll up instead if actual costs

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

Source Photonics used Enhanced Postponement

The Oracle APS and Demantra Specialists

ASCP plans with IO as input

The Oracle APS and Demantra Specialists

Propagated service levels

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

Steps taken to make ASCP work

The Oracle APS and Demantra Specialists

Factors considered to fine tune ASCP

Lot for Lot

The Oracle APS and Demantra Specialists

The Oracle APS and Demantra Specialists

Plans with postponement

Plans with postponement