Take the guesswork out of managing inventory and save money

Inventory is not an asset, but a liability. It is working capital – and it is a risk. Every company needs to reduce the risk, take the guesswork out of managing inventory and increase productivity, releasing working capital in the process.

Our methodology – Optimus – provides the strategic input that links the service objectives of a business to the processes and decisions involved in stock replenishment for each of its line items.

Not just a product – an inventory methodology

Optimus is a combination of advanced strategic modelling software and a practical hands-on focus on people and processes.

World-class modelling tools identify and quantify the causes of inventory at each node in the supply chain, improve demand forecasting and set appropriate stockholding targets. The system identifies the key issues requiring attention to yield the greatest results in

• Supplier Management
• Expediting
• Order replenishment
• Demand forecasting
• Safety stock levels
• Order pipeline monitoring
• Excess stock management

The Optimus methodology has a dramatic impact on return on investment by achieving large reductions in inventory while increasing sales and market share through higher availability.

The value of availability

For sales, in an increasingly competitive environment, where product differentiation and brand loyalty are on the wane, product availability plays a critical role in securing new business and customer retention. For services, the customer’s absolute measure is availability – if it is not there when they need it, you have failed.
We have developed methodologies and decision-support tools to meet these needs – to create and sustain inventory optimisation throughout the supply chain – driven by the compulsion to maximise customer satisfaction.

Optimus utilises breakthrough technology that quantifies the value of availability and conversely, the cost of stock-outs. Stock turn and availability targets can be set stock turn and availability targets can be set to maximise customer service and maximise return on investment.

The Optimus core process

To optimise the inventory chain, companies must manage and reduce risk at each node. This requires a structured methodology, improved forecasting and supply management and the use of advanced modelling tools.

• Risk Sources. Uncertainty, both upstream (supply reliability) and downstream (forecast accuracy), is the major driver of risk and the major cause of inventory
• Risk Multipliers. The stock replenishment cycle, review periods and lead time all act as risk multipliers, leading to higher levels of inventory
• The Management Process. Only by reducing uncertainty at the source, and manipulating the risk multipliers, can companies reduce risk and reduce the amount of safety stock needed for each line item.
• Strategic Plans. It is vital to integrate marketing objectives and target availability levels into overall investment strategies and ensure that these are represented in every recommended order.
• Inventory Models. Only by modelling the inventory investment required to support different availability level targets in what-if scenarios, can appropriate and achievable inventory investment targets be set.

Key Optimus components

• Forecasting, using a ‘tournament’ forecast method which runs algorithms and optimises parameters;
• Policy setting, for hierarchical categories, optimising service and inventory levels;
• Supplier and lead time evaluation, monitoring and reviewing performance and risk contribution;
• Distribution Requirements Planning. The Optimus model is based on actual requirements over multiple distribution outlets as well as historical performance;
• Reporting using a management cockpit and specific reports;
• Intelligence, continually monitoring and comparing inventory transactions against policy;
• Key Performance Indicators clearly showing any action required to maintain optimum inventory levels against business objectives.

Implementing Optimus – Shared Risk

Optimus is designed to operate in conjunction with any ERP inventory control module which records stock balances, stock movement transactions and item level inventory policies including TROPOS, SAP, Oracle, Baan, BPCS, Sage(Tetra) etc. The data is extracted from the host ERP system into Optimus, which runs in a two tier client/server architecture, typically a Windows NT or Unix system. Data integration is achieved through simple ASCII file transfer.

Once the interfaces with the host system have been set up, the key to sustainable improvements in inventory management is the identification of the root cause of inventory, modelling the improvement options, and monitoring the effect of the recommendations.

SSI will install the Optimus software tools and provide a ROI assessment on the client’s data from a shared risk assignment, typically lasting twenty days. The decision to proceed can then be made on the basis of improvements identified and evaluated, giving a visible cost justification. Optimus can be implemented through conventional software license and knowledge transfer, managed services with no software investment, or on a risk-reward basis against agreed targets.