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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 1
Strategic inventory levels to satisfy customer requirements
Northern Cal OAUG Training DayJanuary 21, 2009
Sridhar HoskotePartner, Inspirage LLC
The Oracle APS and Demantra SpecialistsThe 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
Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 2
The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Inspirage is recognized as a premier consulting firm specializing in Oracle Advanced Planning and Demantra Applications.
• Founded by former Oracle APS Product Development Senior Managers 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
Copyright © Inspirage LLC, 2008. Private and confidential. All rights reserved Page 3
The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Inspirage Customers
Copyright © Inspirage LLC, 2008. Private and confidential. All rights reserved Page 4
The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Copyright © Inspirage LLC, 2008. Private and confidential. All rights reserved Page 5
Inspirage provides the complete expertise of the integrated Oracle forecasting and supply planning solutions
Demand Management, StatsForecast, Multi-tierCollaboration
Workflow, AF/DM, Chaining, MemberManagement Consume
Forecast
Constrained / Optimized Planning
SO History
DM
ASCP
GOP
Schedule,Un-schedule orders
Advanced Planning
ERP
Release orders
Schedule orders
Trading PartnerCollaboration
CP
S&OP Monitor plans to actual, collaborate, and respond
Distribution/ ServiceParts Planning
Collect PlanningData
SNO
StrategicSourcing
Detailed Scheduling
PS
IO
InventoryStrategy
The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
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
Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 6
The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Oracle footprint
20062006 20072007 Summer 08Summer 08 November 08November 08
Ora
cle
Execu
tion
prod
ucts
Const
rain
ed A
SCP
Inve
ntor
y O
ptim
izat
ion-
Phase
1
Feb 09Feb 09
Inve
ntor
y O
ptim
izat
ion-
Phase
2
Glo
bal O
rder
Prom
isin
g/Pilo
t CP
• 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
Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 7
The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Business Challenges
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Business ChallengesCustomers
Request DateRequest Date
Scheduled Ship Date
Scheduled Ship Date
14 wks LT14 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?
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
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
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
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
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Supply Chain
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
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
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Simplified supply chain BOM
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Products fan out
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Need for System Support
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Several critical complexities to consider
A B
X
C D
E F
D G C HA
I J
YMulti-echelonMulti-
echelon
PoolingPooling
Time varying Inventory
Time varying Inventory
PostponementPostponement
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Need for programmatic inventory calculation
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Modeling
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Modeling
Strategic Inventory
Strategic Inventory
Demand Variability
Lead Time Variability
Service Levels
MAPE (Mean Absolute Percent Error) for each product line
MAPE (Mean Absolute Percent Error) for each product line
Primary driver for setting this was based on OTD
Primary driver for setting this was based on OTD
Via simple probability distribution of lateness
Via simple probability distribution of lateness
Supply Chain BOM
Supply Chain BOM using BOM, sourcing, routings
Supply Chain BOM using BOM, sourcing, routings
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Modeling
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Implementing Inventory
Optimization
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Important set up for IO to run
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Other significant set ups
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Plan options
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
A
X
LT= 5 daysLT= 5 days
LT= 65 daysLT= 65 days
B
Postponed SS is in matched sets
Both A and B will get SS based on max LT which is A
Postponed SS is in matched sets
Both A and B will get SS based on max LT which is A
A
X
LT= 5 daysLT= 5 days
LT= 65 daysLT= 65 days
B
Postponed SS is based on LT for each component
A and B will get SS based on their LTs
Postponed SS is based on LT for each component
A and B will get SS based on their LTs
Enhanced postponement
NORMAL POSTPONEMENTNORMAL POSTPONEMENT ENHANCED POSTPONEMENTENHANCED POSTPONEMENT
Source Photonics used Enhanced Postponement Source Photonics used Enhanced Postponement Copyright © Inspirage LLC, 2009. Private and confidential. All rights reserved Page 26
The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
ASCP plans with IO as input
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Propagated service levels
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Plan facts
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Plan facts
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
IO Integration withConstrained ASCP
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Steps taken to make ASCP work
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Factors considered to fine tune ASCP
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Cutover Process
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Plans with no postponement,
Demand variability only
Plans with no postponement,
Demand variability only
Plans with postponement
Demand variability only
Plans with postponement
Demand variability only
Plans with postponement
Demand and supplier lead time variability
Plans with postponement
Demand and supplier lead time variability
IO plans
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Explaining output from IO
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Plans with postponement
Demand variability only
Plans with postponement
Demand variability only
Plans with postponement
Demand and supplier lead time variability
Plans with postponement
Demand and supplier lead time variability
ASCP plansConstrained ASCP
Plans
Constrained ASCP
Plans
Constrained ASCP
Plans
Constrained ASCP
Plans
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• 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
Adoption of IO into ASCP plans
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Results & Summary
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
• The overall safety stock planned is in line with expectations- approximately 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
Results
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
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
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The Oracle APS and Demantra SpecialistsThe Oracle APS and Demantra Specialists
Question & Answers?
Sridhar Hoskote 510 676 6753
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