Global Inventory Management Strategy, Design & Execution:Optimisation & Flexibility Amidst Constant Change

Joel Marusiak

IM Solutions Manager - EMEA

February 8th 2013

Your future, our history

• Your business is time sensitive?

• Your product is service critical?

• You require an agile partner that addresses all your needs?

You answered YES to these questions?

Then join our customers and chose Neovia Logistics to manage your value chain.

Your business, our expertise

Initial Sales

Revenue

AftermarketRevenue

InitialSalesMargin

2x-5xOpportunity

4x-10xOpportunity

0 5 10 15 yrs 0 5 10 15 yrs

AftermarketSales Margin

Why is Spare Parts Inventory so important?

Inventory is the core of any Supply Chain

• Right Part• Right Place • Right Time

• Product / Plant up-time • Customer Satisfaction • Loyalty• Profitability • Competitive Advantage

Inventory Optimisation Software: Expectation V’s Actual Results

Benefit Value in €

Time

Expectation:• Return on investment• Immediate optimisation of inventory• Quick wins

Reality of software implementation:• High cost – >1.5 x software• Long, iterative process• Continuous Improvement• Trial & error• Optimised point unknown

Define standardisedprocesses

Fill gaps in the systems functionality

Change existing system

Understand world class inventory management philosophy

Understand existing system

Measure & Monitor Impact

Stabilisation

Refine parameter

Implement standard processes

Measure baseline

Small iterative changes

Overall Inventory Optimisation:Managing the product lifecycle

New PartIntroduction

StatisticalForecasting

End of lifeManagement

• Risk: Customer dissatisfaction / obsolescence • Limited / No system functionality

• Risk: Balance between service & inventory under optimised• Mature parts managed by global, multi-echelon system• System configurations set to fulfil targets• Exception management• Expertise for refining configurations

• Risk: High obsolescence• Limited / No system functionality

Must be customised to Client-specific data and goals

New Part Introduction

Issue Impact

Global New Model Launch High customer expectation

Aftermarket support

critical to brand perception

High fill rate required

1000’s of new parts Huge obsolescence risk

No demand history No system forecasting

solution

Collaboration &

Communication

Identify new parts

Collect data on

similar parts

Set statistics

Replenish & deploy

Constant introduction of small numberof new items also require attention tomanage overall parts profile

Overall Inventory Optimisation:Managing the product lifecycle

Mature parts – statistical forecasting

Is your system capturing andusing data effectively?

PART# ABC PART# DEF

Monthly Demand 100 pieces 100 pieces

Cost per piece €10 €10

Lead Time 30 days 30 days

Criticality (Service) Same Same

Monthly Customer Order Lines 2 lines @ 50 pieces 20 lines @ 5 pieces

Which part should have greater safety stock? - Same?

Now which part should have greater safety stock?

Part DEF impacts more customers with lower inventory investment

Using order lines & pieces-per line to forecast & plan inventory provides the foundation to optimising both inventory & service

“Dialling” the system, optimisingyour inventory

FillFillRateRate

OperationOperationWorkloadWorkload

InventoryInventoryInvestmentInvestment

MasterMasterDataData

SystemSystemConfigurationConfiguration

FacilityFacilityPlanningPlanning

SupplierSupplierSchedulesSchedules

IM AnalystIM Analyst

WorkloadWorkload

FillRate

OperationWorkload

InventoryInvestment

MasterData

SystemConfiguration

FacilityPlanning

SupplierSchedules

IM Analyst

Workload

Sales Sales DemandDemand

ProductProductMasterMasterDataData

ConfigurationConfiguration

PricePriceBreaksBreaks

Business Business StrategyStrategy

Bill Of Bill Of DistributionDistribution

Sales Demand

ProductMasterData

Configuration

PriceBreaks

Business Strategy

Bill Of Distribution

10

SimulationSimulation

Demand DrivenDemand Driven

Constraint ConsiderationConstraint Consideration

Discreet Event ProcessingDiscreet Event Processing

Holistic ViewHolistic View

OptimisationOptimisation

Global Parts PopulationGlobal Parts Population

OrderProcessing

OrderProcessing

ForecastForecastStocking EvaluationStocking Evaluation

Receipts &DeploymentsReceipts &Deployments

RequirementPlanning

RequirementPlanning

Simulation

Demand Driven

Constraint Consideration

Discreet Event Processing

Holistic View

Optimisation

Global Parts Population

OrderProcessing

ForecastStocking Evaluation

Receipts &Deployments

RequirementPlanning

Supply chain impacts known prior to Execution

Stocked

Items

Service /

Fill Rate

Average

Inventory

Inv.

Turns

€10

€12

€14

€16

€18

€20

88% 90% 92% 94% 96% 98% 100%

Service / Fill Rate

Avera

ge I

nvento

ry(in m

illio

ns)

Simulation Scenario

#1 – Baseline 26,708 89.4% €18.181 3.69

#2 – Inventory Strategy 20,931 89.4% €11.187 5.98

#3 – Fill Rate Strategy 23,542 98.6% €18.195 3.67

#4 – Optimised Inventory 21,715 94.3% €13.430 4.99

Simulation Results:Choosing a strategy

Simulation Establishes Optimal Service V’s Inventory Exchange Curve & Supply Chain view

Cash Flow & Space

Customer Service

Optimised performance

Facility sizing& capital

Return On Investment

11

Managing varying demand types:

System defined forecast models at SKU level:

“The goal of forecasting is not to predict the future but to tell you what you need to know to take meaningful action in the present.”

Paul Saffo, Harvard Business Review

Agile & Flexible Forecasting

Demand Forecast

Intermittent / Erratic

Time

Random

Time

Seasonal / Cyclic

Time

Trend

Time

Demand Forecast

Demand Trip

Time

Outliers

Time

Campaign / Surge

Time

Change

In the modern economy and worldwide market place, what could change the status quo?...

Everything!Economic crisis - “Great Recession”

Earthquakes

Tsunami

Government policy

Changing supply base

Competition

Market Shifts & Expansion

Overall Inventory Optimisation:Managing the product lifecycle

End of life management

End of product Life

Flexibility enables forecast accuracy, optimised inventory andminimises obsolescence

• Forecast tracks demand changes • Responsiveness to change can be varied

Declining Growth Rate

Time

• Forecast remaining product support period• Investigate commercial opportunity• Decide whether to purchase ATB

All Time Buy

Supersession • Supersession at SKU level• Supersession start date • Demand capture on all levels of the chain• Sales order allocation• Forecasting• Replenishments (DRP/Purchasing & Deployments)• Chain breaks

16

Strategy

ExecutionPerformance Monitoring

People

ProcessTechnology

People, Process & Technology: Core to Flexible and Agile Inventory Management

Benefits: • Rapidly optimised inventory• Cash flow increased• Maximised customer service• Minimal disruption to supply chain• Immediate Return On Investment

“Big Bang” Return On Investment

Benefit Value in €

Time

Strategy

ExecutionPerformance Monitoring

People

The true value of world class inventory planning technology can only be realised when tightly managed by experts using best-practice processes

• Inventory -20%

• Maintained fill >95%“Great

Recession”

• Inventory -7%

• Fill rate +3%

• Inventory Turns +65%

50% Sales Growth

• Inventory -42%

• Facing (local) fill rate +13%

• Inventory turns + 49%

Network Restructuring

Actual Results

Thank you for listening

18

Joel MarusiakIM Solutions Manager – EMEANeovia Logistics

Please feel free to get in touch…

joel.marusiak@neovialogistics.com

Strategy

Forecasting & Inventory Planning

Replenishment & Deployment

Client Collaboration

Performance Monitoring & Analytics