Transcript Slide 1

Inventory Optimization of
Seasonal Products
with Palisade Evolver and @Risk
Don Mettler
Mettler Consulting, Inc.
11-14-2006
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Introduction
• Problem – how to you reduce inventory given
manufacturing capacity constraints and dynamic
seasonal product demands while not sacrificing industry
leading customer service standards
• Solution
– A genetic model that analyzes thousands of variables and
incorporates the factor of uncertainty into appropriate variables
– Delivery the solution with as little interruption as possible to
existing process
• Integrate with existing systems – Cognos, ERP, Sales Processing
• Work seamlessly with the ordering process
• Access via the Internet to allow remote users to enter mission
critical data
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Capacity vs. Demand - The Problem
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Goals
• Produce the just the amount of product to meet
demand while keeping inventory and associated
costs to a minimum
– Work against corporate culture that tends to over
build in order to insure against customer stock outs
• A seamless process that can be plugged into
existing systems
– Minimize new operating procedures for plant
personnel and sales reps.
• A series of reports and outputs that can measure
the effectiveness of the model
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Model Environment
• The new model will need to incorporate
the following requirements
– Optimize inventory over the coming 52 weeks
– Highly volatile product demand
– Plant capacity and product inputs
– Distributed user set
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Highly Volatile Product Demand
• Product supports the agriculture industry
– Lettuce, tomatoes, carrots, etc…
• High variability in the output due to
weather and other natural factors
• Historic data has not been tracked
• Sales personnel often do not communicate
back to the plant as effectively as they
could on the product demand in order to
ensure optimal plant planning
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Fixed Production Capacity
• Each product line is produced using
multiple machines
• Machines are shared between multiple
product lines
• Capacity for each product line is the
capacity the machine with the lowest
capacity – “the weakest link”
• Administrators can increase capacity by
adding work hours – very costly
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Delivery of Solution
• Easy to use product forecast entry for the sales
force with corresponding management reporting
to enforce entry of forecast
• The solution must be integrated into the ordering
process and only require limited input from the
customer services reps for each order
• Data from all plants must rolled up (Cognos) for
management reporting
• Intuitive interface for plant administrators to
manage their model efficiently
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
The Solution
• Model based on genetic modeling that
evaluates all factors within a given plant
and includes the factor of uncertainty
around demand variables
– Variable inputs
– Fixed inputs
– Time periods
– Outputs and measures
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Variable Inputs
• Demand data
– Entered on a monthly basis by the customer sales rep
per product line
– Sales rep can associate a confidence level with each
product line
– This data is the uncertainty of the model
• Cost data
– Materials, labor, freight
• Alternative manufacturing options
– Internal farm out, external farm out, or turn down
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Fixed Inputs
• Plant machines
– Multiple machines are required for each
product
– Machines are grouped into product lines
where each machine can belong to multiple
lines
– Costs are associated with each machine for
the optimization process
– Capacity can be lowered or raised by adding
work shifts – generally not done very often
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Time Period
• Model is run on a rolling 52 week period
– Variable demand is captured in months (12)
– Costs and capacity are also captured in
months (12)
– Each of the 52 weeks is evaluated separately
– Costs and inventory from previous weeks
carry forward
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Excel Prototype
• Excel was used as a model development
platform since many none technical people can
easily use and understand
• Easier than prototyping using a development
language such as VB, C++, or Java
• Easier to demonstrate and explain to none
technical people
• Results from the excel model were validated
within the core team.
• Used Palisade RiskOptimizer product for the
prototype
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Risk Optimizer
• Once the excel model was completed we
introduced variability to the model in the form of
Risk Optimizer
• @Risk was used with the sales forecast data to
introduce uncertainty into the model
• Optimization was used to manipulate the
quantities manufactured and to implement
production constraints
• The total cost of inventory was minimized and
the optimal manufacturing levels stored in the
database for reference as order are placed
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Production Solution
• Final model was implemented in 6 plants
with the possibility of more (2 east, 4 west)
• Solution must provide a recommendation
to CSRs during their ordering process,
with as little interference as possible
• Users and administrators interact with the
model through a web interface accessible
from any computer with Internet access
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
52 Week Optimization
• 52 individual weeks are optimized
– Demand for each week
– Capacity for each week
– Inventory and costs for each week is carried
forward
• Future orders are match against the
appropriate week for optimal results
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Running Schedule
• Model runs nightly for 8 hours
• Results are stored in the database
– Results are stored for each week and product type
• Previous results are stored to be used as the
starting point for the next nights run.
• Weekend runs go for 16 hours to ensure optimal
solutions and correct for any weekly changes
• Refreshes are possible at the administrators
discretion
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Application of Results
• Results of the optimization process are stored
on the Database
• Each order looks up the corresponding week
and product type to find the settings
– The stored results will know if the plant should be
building up a given product line or ramping down
• Resulting settings are run through a linear
decisioning process to determine quantities to
manufacture, ship from inventory, farm out, or
turn down
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Order Processing
• Every order is analyzed during input
– Attributes of the order that are reviewed
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Product and product line
Quantity
Due date
Customer ranking (A, B, C)
– Model returns a recommendation
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Pull from inventory
Build and ship
Build and pre-build (how much to build for inventory)
Farm out internally/externally
Turn down
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Sales Demand Collection
• The Web based Demand Forecast is configured based
on the customers assigned to the Sales Rep. The
customers are maintainable by the system administrator
• A confidence percent value lets sales reps indicate how
accurate they feel their sales forecasts are
– This confidence percent feeds the @Risk distribution
• The actual forecast amount is the medium while the Confidence
Percent is used to determine the high and low amounts.
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Administrative Tools
• Allows for a plant administrator to maintain and
modify the model
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Add and remove machines
Add and remove product types
Add and remove product lines
Associate machines and product types to product
lines
– Set machine capacity levels
– Clear previous optimization settings
– Set running time length
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006
Results
• Gradual lowering of inventory levels
– Lower inventory costs
– Lower manufacturing costs
– Lower scrape and freight costs
• Improved customer service
– Better informed customer service reps.
– Less chance of stock as a result of better demand
forecasts
• Development time – total of 10 months
– 2 months for the prototype
– 5 months for the web model
– 3 months for system integration and product rollout
www.mettler-consulting.com
2006 Palisade User Conference
[email protected]
November 14th, 2006