Preface

15

Who This Book Is For

15

How This Book Is Organized

15

Acknowledgements

18

Conclusion

19

1 Introduction to Inventory Planning and Optimization

21

1.1 What Is Inventory?

22

1.1.1 Cost of Inventory

22

1.1.2 Purposes of Inventory

23

1.1.3 Types of Inventory

26

1.2 Where Is Inventory Held?

28

1.2.1 Supply Chain Networks

28

1.2.2 Extended Supply Chain Networks

29

1.3 Building an Inventory Management Approach

29

1.3.1 Inventory Control Systems

30

1.3.2 Inventory Management Approaches

31

1.4 Objectives of Inventory Planning and Optimization

34

1.5 Role of Technology in Inventory Planning and Optimization

36

1.5.1 Technology in Inventory Control Systems

36

1.5.2 Technology in Inventory Management

37

1.5.3 Technology in Inventory Planning and Optimization

38

1.5.4 Technology Platform Criteria

39

1.6 Introducing SAP Integrated Business Planning

40

1.6.1 History and Capabilities

40

1.6.2 Solution Overview

47

1.6.3 Network Inventory Planning

51

1.6.4 Demand-Driven MRP

53

1.7 Summary

56

2 Understanding Inventory Variables

57

2.1 Primary Factors that Drive Inventory

57

2.1.1 Demand Forecast

57

2.1.2 Lead Time

64

2.1.3 Order Cycle

68

2.1.4 Variability

69

2.1.5 Service Level Target

69

2.2 Breakdown of Variability Drivers

75

2.2.1 Demand Variability

75

2.2.2 Lead Time Variability

88

2.2.3 Service Variability

91

2.3 Additional Factors that Influence Inventory

92

2.3.1 Service Level Type

92

2.3.2 Replenishment Strategy

94

2.3.3 Stocking Policy

95

2.3.4 Sourcing Decisions

97

2.3.5 Bill of Materials

99

2.3.6 Lot Size and Economic Order Quantities

101

2.3.7 Inventory Holding Cost

103

2.4 Summary

104

3 Configuring SAP IBP for Inventory

105

3.1 Architecture

105

3.2 Building Blocks

106

3.2.1 Attributes

108

3.2.2 Master Data Type

111

3.2.3 Time Profiles

116

3.2.4 Planning Area

118

3.2.5 Planning Levels

120

3.2.6 Key Figures

123

3.2.7 Key Figure Calculation

130

3.3 Planning Area Setup Using Predelivered Content

134

3.4 Versions

139

3.5 Scenarios

142

3.6 Planning Operators

143

3.7 Reason Codes

146

3.8 Data Integration

148

3.9 Planning Views

148

3.9.1 Connection to SAP IBP System

149

3.9.2 Creating a New Planning View

150

3.10 Dashboard and Analytics

153

3.11 Summary

156

4 Modeling a Supply Network

157

4.1 Introduction to Supply Networks

157

4.2 Supply Network Complexity

159

4.2.1 Static Sources

160

4.2.2 Dynamic Sources

163

4.3 Elements of a Supply Network

164

4.3.1 Locations

165

4.3.2 Suppliers

166

4.3.3 Products

167

4.3.4 Customers

168

4.3.5 Source Customer Group

171

4.3.6 Location Product

171

4.3.7 Ship-From Location and Ship-To Location

174

4.3.8 Location Sourcing

175

4.3.9 Production Sourcing

177

4.3.10 Production Sourcing Item

180

4.4 Visualizing Supply Networks in SAP IBP

181

4.5 Summary

184

5 Optimizing Inventory in SAP IBP

185

5.1 What Is Network Inventory Optimization in SAP IBP?

185

5.2 Building Blocks for Inventory Calculation

187

5.2.1 Inventory Replenishment Process Definitions

187

5.2.2 Impact of Primary Drivers on Inventory Targets

189

5.2.3 Impact of Time-Varying Demand

200

5.3 Network Multiechelon Inventory Calculation

201

5.3.1 Constructing the Network Topology

202

5.3.2 Historical Forecast Accuracy for Customer Demand

204

5.3.3 Future Demand Forecast and Variability

216

5.3.4 Demand Forecast Variability Propagation

216

5.3.5 Estimating Service Variability from Source Location

220

5.3.6 Finalizing the Inventory Targets

226

5.4 Summary

230

6 Structuring Inventory

231

6.1 Types of Inventory

231

6.1.1 Flow of Materials and Purpose

232

6.1.2 Cycle Stock

234

6.1.3 Pipeline Stock

235

6.1.4 Safety Stock

235

6.1.5 Merchandizing Stock

236

6.1.6 Prebuild Stock

236

6.2 Further Decomposition of Safety Stock

237

6.2.1 Safety Stock Due to Demand Variability

237

6.2.2 Safety Stock Due to Supply Variability

238

6.2.3 Safety Stock Due to Service Variability

239

6.3 Calculating Inventory Components

241

6.3.1 Operator to Calculate Inventory Components

241

6.3.2 Inputs to Calculate Inventory Components

243

6.3.3 Outputs of Inventory Components Calculation

248

6.4 Summary

251

7 Designing Your Inventory Planning Process

253

7.1 Centralized and Decentralized Inventory Planning Teams

253

7.2 Frequency of the Inventory Planning Cycle

255

7.3 From Reactive to Proactive Planner Tasks

257

7.4 Inventory Planning in Sales and Operations Planning

258

7.5 Sequence of Planning Tasks

260

7.5.1 Step 1: Validate Inputs for Inventory Optimization

262

7.5.2 Step 2: Running Inventory Optimization

264

7.5.3 Step 3: Analyze Inventory Optimization Results via Scenario Planning

266

7.5.4 Step 4: Finalize Inventory Plan

269

7.6 Segmentation

270

7.7 Role of the Inventory Planner

272

7.8 Summary

273

8 Measuring Inventory Performance

275

8.1 Example Supply Chain for Inventory Planning

275

8.2 Key Performance Indicators for Inventory Optimization

279

8.3 Validate Input Quality

281

8.4 Review Inventory Plan

287

8.5 Assess Inventory Drivers

289

8.6 Finalize Inventory Plan

294

8.7 Create Custom Inventory Alerts

299

8.7.1 Inventory Alerts Key Figures

299

8.7.2 Inventory Alerts through Custom Alerts Application

304

8.8 Summary

310

9 Building Intuition and Conducting What-If Analysis

311

9.1 What-If Analysis with Versions and Scenarios

312

9.2 Perform What-If Analysis

313

9.3 Simulating Situations

319

9.3.1 Service Level

319

9.3.2 Distribution Lot Size

326

9.3.3 Periods between Review

328

9.4 Intuition Building

332

9.5 Strategic What-If Analysis

334

9.6 Tactical What-If Analysis

337

9.7 Summary

338

10 Integrating SAP IBP for Inventory

339

10.1 Data Integration Technologies

339

10.2 Manual Data Integration Using the Web UI

342

10.2.1 Integration Process

343

10.2.2 Time Periods

346

10.2.3 Master Data

347

10.2.4 Key Figures

349

10.3 Integration using SAP Cloud Platform Integration for Data Services

350

10.3.1 Architecture

351

10.3.2 Predefined Content

354

10.3.3 Creating Your First Integration

355

10.4 With SAP IBP Applications in the Unified Planning Area

361

10.5 With SAP ERP and SAP S/4HANA

362

10.6 With SAP APO

365

10.7 With Non-SAP Systems

366

10.8 Exporting Data Using OData Services

367

10.9 Summary

367

11 Planning Your Implementation

369

11.1 Cloud Software Considerations

369

11.1.1 Provisioning

369

11.1.2 Implementation

370

11.1.3 Integration

372

11.1.4 Upgrades

373

11.2 Manual versus Automated Workflow

374

11.2.1 Job Scheduling

374

11.2.2 Process Management

380

11.3 Agile versus Waterfall Implementation Methodology

382

11.3.1 Agile Principles

382

11.3.2 User Stories

383

11.3.3 Agile Teams and Roles

386

11.3.4 Agile Phases

386

11.4 Roles and Responsibilities

389

11.5 Summary

391

12 Case Studies

393

12.1 Case Study 1: Manufacturing Industry

393

12.1.1 Company Background

393

12.1.2 Case for Action

394

12.1.3 Implementation Scope and Approach

394

12.1.4 Value Drivers

396

12.1.5 Lessons Learned

396

12.2 Case Study 2: Consumer Goods

396

12.2.1 Company Background

397

12.2.2 Case for Action

397

12.2.3 Implementation Scope and Approach

397

12.2.4 Value Drivers

399

12.2.5 Lessons Learned

399

12.3 Case Study 3: High-Tech Company

399

12.3.1 Company Background

399

12.3.2 Case for Action

400

12.3.3 Implementation Scope and Approach

400

12.3.4 Value Drivers

401

12.3.5 Lessons Learned

401

12.4 Case Study 4: Consumer Products

402

12.4.1 Company Background

403

12.4.2 Case for Action

403

12.4.3 Implementation Scope and Approach

404

12.4.4 Value Drivers

405

12.4.5 Lessons Learned

405

12.5 Summary

406