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Transcript of [email protected] 2006 Palisade User ConferenceNovember 14 th,...
www.mettler-consulting.com [email protected]
2006 Palisade User Conference November 14th, 2006
Inventory Optimization of Seasonal Products
with Palisade Evolver and @Risk
Don MettlerMettler Consulting, Inc.
11-14-2006
www.mettler-consulting.com [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference November 14th, 2006
Capacity vs. Demand - The Problem
www.mettler-consulting.com [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference November 14th, 2006
Order Processing
• Every order is analyzed during input – Attributes of the order that are reviewed
• Product and product line• Quantity• Due date• Customer ranking (A, B, C)
– Model returns a recommendation• 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 [email protected]
2006 Palisade User Conference 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 [email protected]
2006 Palisade User Conference November 14th, 2006
Administrative Tools
• Allows for a plant administrator to maintain and modify the model– 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 [email protected]
2006 Palisade User Conference 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