The Optilon Supply Chain Sustainability
Minifestival took place from February 21st to February 25th 2022. Watch or
rewatch all the exciting sessions whenever you like.
Delivering on Circularity
Monday we had a great start with a very
dynamic and knowledgeable speaker, Gitte Haar, from Center for Circular Economy
who introduced us to the Circular Economy and the legislation which the EU is
imposing as well. We looked at what impact it could possibly have on
Supply Chain Design and Sustainability –
Accelerating the Net Zero emissions journey
We had the pleasure of having Anders
Remnebäck and Andreas Andersson on stage from Optilon. They are both very
experienced when it comes to adding the Sustainability angle to Network
Optimization/Supply Chain Design. They have in this webinar focus on how you
can accelerate the journey to NetZero emissions. You
can watch the recording here.
During this session we had invited 6
different start-ups from across Europe to do a pitch. All of them showcased how
their company specifically is trying tol solve the Sustainability challenges
with their software. The company Prewavewon. You
can watch the recording here.
Supply Chain Planning and Optimization from a Sustainability Perspective
The terminology Regenerative Supply Chain
is not yet widely recognized in the Supply Chain field. In this session we looked
a little bit deeper into the terminology in order to try and understand what
impact it could possibly have. Assistant professor at Århus University Henning
De Haas gave an introduction to his understanding of the Regenerative Supply
Chain. He put emphasis on the fact, that mental models play a vital role. After
that, August Krogh From Slowforest
Coffee introduced us the company he works for. They have already laid
out the plans for their Regenerative Supply Chain. You
can watch the recording here.
The typical business or Supply Chain operates in a world where the “new normal” is increased instability, brought about by a multitude of causes. Supply Chains must become more agile, resilient, automated, and efficient. This is also true within production.
Do you encounter the following challenges in your production?
Are your service levels low?
Do you have a high inventory and capital tied up in stock
Is it cumbersome to reschedule the production plan?
Do you have a low level of automation in your processes?
Are you lacking an overview and one joint production plan?
Are you able to simulate?
Where and how much to produce It is essential for the business to address when, where, and how much to produce to maximize service levels and production efficiency while minimizing inventory and production costs. Effective plans are enabled with Supply Chain Production Planning technology.
In the mid-to-long-term perspective, a feasible and leveled production plan supports production management for capacity/manning decisions and the requirements of purchase materials. In the short term, a realistic production schedule is created to support production supervisors/operators in producing the right order at the right time, ensuring high service levels and minimized set-up times.
Real-time simulations In other words, a Supply Chain Production planning solution helps effectively and timely govern the core processes of advanced planning, scheduling, and manufacturing execution. The lean, flexible and interactive tool is designed to run real-time simulations and thoroughly analyze results, following intuitive and streamlined workflows.
At Optilon, we can help you implement effective processes through cutting-edge technology to:
Obtain a high degree of automation and reduce manual work for planners
Reschedule plans faster when prerequisites changes
Obtain higher service levels and reliability of promised delivery time
Get a lower inventory and capital tied up in stock
Minimize set-up time and production costs – and increase resource efficiency.
One common plan. Better overview and company-wide decision and communication platform.
To be able to work more proactively and see future problems in advance.
The typical business or Supply Chain operates in a world where the “new normal” is increased instability, brought about by a multitude of causes. Supply Chains must become more agile, resilient, automated, and efficient and this is also true for the production. environment.
Many companies are challenged by cumbersome processes to reschedule production plans, high inventory and capital tied up in stock, low level of automation, no simulation possibilities and a lack of overview and a lack of one common production plan. Cases
Absolut company An increased production complexity made The Absolut Company look for a better and more efficient way to manage the production of the most exported food and beverage product in Sweden. With the purchase of the company from the Swedish government in 2008, Pernod Ricard initiated a transformation of the brand. This had a large impact on the manufacturing process. Check out the case here.
Orthex company Orthex Group, a leading manufacturer of household products in the Nordic, operates in a sector where the customers have high demands on short lead times and on-time delivery. When unexpected large orders are common and the company growth increases Supply Chain complexity, it puts pressure on the production planning process and the planners involved. By implementing technology Orthex has been able to take a big step towards 100% planning controlCheck out the case here.
Understanding inventory optimization is key if you want to optimize your Supply Chain with technology. In this blogpost we will look into the details.
Today’s consumers demand more options and greater variety. Trends change quickly. The result is that companies are carrying more slow-moving items with irregular, intermittent demand patterns. Traditional ABC inventory planning, developed in the 1950s, just doesn’t work in this world. Instead, we suggest to use inventory optimization software. It should use self-adaptive demand and inventory models to automatically define the optimal mix of inventory across the multi-echelon Supply Chain. That way you can achieve aggressive service level targets while minimizing inventory and reducing costs, at the same time. As a company you are able to manage slow-moving and intermittent demand items more effectively.
The model is highly reliable because of the proprietary analytical relationships between inventory and customer service levels, even for very slow moving and intermittent demand items. This allows the system to optimize even very large assortments, including products in the “long tail”, balancing inventories across different locations and different levels in the bill of materials (BOM).
Meet high service levels while minimizing inventory Instead of creating a “one-size-fits-all” inventory mix within item groups defined by rudimentary classification criteria, the inventory optimization approach differentiates service and inventory targets across products, bill-of-materials levels, and distribution network locations to most efficiently meet desired customer service level objectives.
Free up working capital By applying advanced modeling and artificial intelligence (AI) to optimize inventory at the individual SKU and location level, you are typically able to reduce overall inventory levels by 10-30%. Less money tied up in inventory means you have more cash available for better uses.
Inventory modelling The inventory modeling technology is capable of eliminating the gross approximations of traditional inventory management, creating very reliable relationships between average inventory and service levels for each SKU and location. This allows the inventory optimization solution to define the optimal inventory mix across products and network to meet service targets at the lowest cost.
Service-driven optimization Unlike ABC inventory planning, which has an operational perspective, service-driven inventory optimization centers on sales, marketing, and customers. It uses categories called “service classes” that sales and marketing people can easily relate to. Then it optimizes every SKU-Location against a target service level for each service class. The end result is an aggregated service class goal with the lowest possible stock investment.
Multi-echelon inventory optimization (MEIO) To truly serve the end customer, the entire network–from raw materials suppliers and factories through distribution centers and wholesalers–needs the right items in stock. The technologies which we favor suggests optimal inventory levels at each stage of the supply chain, simultaneously balancing across multiple echelons, locations, and different Bill-of-Material (BOM) levels. It finds the most globally efficient balance between upstream and downstream inventory while optimizing safety stocks. It supports centralized demand planning, lowers costs across the Supply Chain, and streamlines operations.
Probabilistic forecasting The probabilistic forecast provides the foundation for inventory planning, and helps manage the risk that comes from demand volatility by providing a range of possible values with their probability of occurrence. Advanced machine learning enhances traditional demand forecasts by modeling internal sources of noise and incorporating the effect of external data.
Understanding inventory optimization is key if you want to optimize your Supply Chain with technology.
If you want to know more about Supply Chain from an end-to-end perspective then you can always check out this online-brochure or download our whitepaper via the below link.
1. Getting started with a modern approach to end-to-end planning
Understand the basics of end-to-end planning (whitepaper) End-to-end Supply Chain planning is about bridging the gap between operations and business plans. It is also about staying in control. Check out and download the whitepaper right here.
You can also read a shorter blog post on what Supply Chain planning is right here.
Do you also have unnecessary items in stock? (Trend report) Did you know that every fifth item in stock is unnecessary? We made a report based on the 400 largest companies in the Nordics. Learn more about our findings and what you can do to ensure that this is not your company. You can download the report here.
2. Understanding more about the details
Understanding inventory optimization (blog post) You can achieve aggressive service level targets while minimizing inventory and reducing costs simultaneously. Learn more about how right here.
How an end-to-end Supply Chain planning approach can benefit the business Having an end-to-end Supply Chain planning approach can turn out to be a competitive advantage in the market. Though, to leverage your Supply Chain for a competitive advantage, it is important to utilize technology to add business value. In this blog post, we will share how it can benefit the business strategy.
Are you going to use a digital twin? (blog post and webinar) Looking to learn more about a digital twin and how it can help you on your end-to-end Supply Chain planning journey? Check out these resources on the digital twin right here. You can also watch a webinar and read about SKF, who made a digital twin part of their core journey and won the Gartner Chainnovator Award in the Industrial Segment. Optilon supported them all the way – and still do. Why ABC inventory classification is old school and not optimization (blog post) ABC inventory classification has been around so long that most planners assume it’s the only way to segment inventory. In fact, it’s not. And it’s not even nearly the best way. Read more in this blog post.
Is the working relationship between operations and marketing an area for optimization? (blog post) In many companies, the working relationship between operations and marketing is challenging. This is where technology within promotions planning can help. Promotions planning is about bridging the gap between operations and marketing. Read more in this blog post.
This brief product demonstration explains the core capabilities of the service-driven planning software we provide with our partner ToolsGroup. The video also describes why it’s different and better than traditional planning solutions.
Supply Chain organizations must rapidly assess new digital strategies and Supply Chain planning technology solutions to accelerate digital business. At the same time, they need to evaluate and identify automation opportunities while supporting organizational change. How do they stretch their organization’s current way of thinking and operating while simultaneously delivering on speed and flexibility? Get some fruitful advice in this blog post.
We are here to help you choose the right journey Our engagement model shows you how we work together with our clients. We want to ensure that you get a humble, engaged, and committed solution delivery that solves your business challenges. Learn more about how we work right here.
Are you heading out on your Sales and Operations Planning journey or have you already embarked on it? This ressource will provide you with lot’s of great content which hopefully can inspire you, to take your Sales and Operations Planning approach to the next level.
1. Getting the journey started
The basics of S&OP Everyone has probably heard about S&OP, but do you really know what it is? In this blog post we provide you with the basics on S&OP. Read more here.
What value do you get from S&OP? Like any other business initiative S&OP should be challenged on value impact. In this blogpost we would like to provide you with some insights. Read more here.
Digitalizing the S&OP process untaps further potential The digitalized version of the S&OP process is recognized to further increase forecast accuracy, as well as reduced inventory investment and stable/increased service level. Read more here.
The myths and realities of Sales and Operations Planning Chekcout this webinar which is a dynamic discussion of what S&OP is and is not. Listen or watch it here.
Welcome to a Recap of The Optilon Supply Chain conference 2021, that was held on September 15th 2021.
The overall theme for this conference was: Thriving in uncertainty. Preparing for the future.
Why is this topic interesting? Supply Chains are typically designed for efficiency, cost, and proximity to markets, but not necessarily for transparency and resilience. Now they are operating in a world where disruptions are regular occurrences. Both business-to-consumer (B2C) and business-to-business (B2B) companies expect to see meaningful shifts in future demand. This will affect commercial models. Thriving in uncertainty and preparing for the future means building resiliency by improving the Supply Chain and transparency, minimizing exposure to shocks, and building the capacity to respond.
Below you will find an outline of the speakers of this conference:
Speaker Matt Britton on the topic of: Understanding the conscious consumers of tomorrow. Matt is a true leader when it comes to connecting the dots between the brands of today and the consumers of tomorrow. Matt has inspired and educated the world’s leading brands, on the state of the new consumer and its effect on business models and consumer trends. Listen to this energetic talk and learn how your brand and business will be affected by the conscious consumer.
Speaker Thomas Bjørnsten on Improving business intelligence with human data. One way of working with resiliency is to work with end-to-end transparency and demand shifts. Thomas Bjørnsten, Phd. works with human data at Innovation Lab. In his speeech he provides insights into facts and fantasies when it comes to the human factor in a data-driven business. He teaches about emotion computing and how feelings can become big (data) business. He also shares how the interactions will be between humans and machines and discuss the role of trust in adoption.
Speaker: Marketing Associate at Optilon John Wikström on the topic: The unredeemed Supply Chain potential in the Nordics. Nordic companies have a potential to redeem a significant potential when it comes to unnecessary inventory, tied up working capital and unnecessary square meters used for storage and distribution. Speaker: John introduces us to the report, which this year covered all the Nordic countries, named The unnecessary report 2021. John shares the possible actions that can be taken to redeem the potential.
Speaker: Manuel Maihofer on the topic of: Improve your end-to-end planning with a digital twin Companies that utilize the digital capabilities of Supply Chain planning will be much more resilient and better equipped to handle challenges, as well as competing more effectively. What does that mean in practical terms? Manuel Maihofer, Business Analyst and Project Manager from SKF focuses on how a digital twin could be an enabler. Manuel Maihofer is convinced, that transparency, business intelligence and digitalization of processes are key facilitators to improve supply chains. Manuel manages agile IT development projects, establishes workflows and turns data into insights, from purchasing to customer service and from production planner to top management. He plays an important role in creating SKF’s digital twin, which fuels initiatives like Integrated Planning, Demand Management and S&OP.
Speaker: Andreas Wieland on the topic of: Transformative Supply Chain Management Andreas Wieland is an Associate Professor of Supply Chain Management at Copenhagen Business School. He is the Program Director of CBS’s Graduate Diploma (HD) in Supply Chain Management. His current research reinterprets global Supply Chains as social–ecological systems. Global supply chains can be quite complex. Many managers have understood this. But maybe supply chains are even more fundamentally different from what we often imagine? In his talk, Andreas Wieland challenges the conventional assumptions we have about supply chains and supply chain management. He provides transformative solutions to futureproof supply chains in an era of crises.
Speaker: Andrew Spence on the topic of: Transforming the world of work with technology Andrew talked about how organizations will be able to find the talent they need – when they need it – from a liquid workforce. Hence, they will require fewer full-time employees, and we will see the demise of the traditional job. The focus will be leading work, not employees. What does this mean in the short and long term?
The Unnecessary Report 2021 once again shows and enormous and unutilized potential for Nordic companies – every fifth stock item is unnecessary. More than a fifth of the inventory is unnecessary for Nordic companies, according to a new report released by Optilon. The average company has an untapped potential of EUR 48 million – which could instead be invested in more growth-promoting purposes. The total figure for the Nordic region’s 400 largest companies amounts to EUR 19 billion.
Effective inventory management and optimization can have a major impact on a company’s profitability. Optilon’s newest publication The Unnecessary report 2021 – which has studied 400 different companies across the Nordics show, that 22 percent of the items in stock are unnecessary for the average Nordic company. This means that they have more goods in stock than they need.
Removing an unnecessary item from the warehouse means not only less tied-up capital, but also less warehouse space, reduced distribution and administration costs and obsolescence. By addressing this and implementing effective inventory management and optimization the average company among the Nordic region’s 400 largest companies will be able to gain around EUR 48 million. Supply Chain has perhaps never been more important. The covid-19 pandemic and the prevailing macroeconomic situation have demonstrated the importance of robust and sustainable supply chains. Having fewer but the right articles in stock gives you more optimization power as a company. You free up capital at the same time as you reduce costs and increase your revenue.
Effective inventory management is an underestimated success factor. It is one of the single biggest measures you can take as a company to maximize your competitiveness. It simply ensures that the resources are used in the right way and where they generate the most value.
ABC inventory classification has been around so long that most planners just assume it’s the only way to segment inventory. In fact, it’s not. And it’s not even nearly the best way. It’s actually a throwback from technology developed during the 1960s that hasn’t responded to the orders of magnitude increase in computer power that has enabled far better ways of solving the problem.
In this blogpost we will look into a more detailed explanation of why ABC inventory classification is old school and look at what true inventory optimization in 2021 looks like.
Understanding the basics of ABC inventory classification To understand the shortcomings of ABC inventory classification, we need to understand how it is done. Nearly all traditional inventory management applications calculate safety stock for each individual SKU-Location combination. This requires identifying the desired service level % for each SKU-Location.
Since most companies have tens of thousands, hundreds of thousands, or even millions of combinations, it’s impossible to identify a service level for every individual SKU-Location. So a simplification is necessary and ABC classification is one way of doing it. A common method is a 3×3 matrix with the cost value on the Y axis and order-lines on the X axis, a so called “double” ABC classification.
The percent distribution between classes is often based on 80% of the cost value in the A items, 15% in the B items and 5% in the C items. The same 80/15/5 breakdown is applied to the number of order-lines. Because just a few items can generate so many order-lines and cost of sales, it usually only takes a few A items to reach the 80% thresholds. Therefore, the end result is a matrix with a very small share classified as AA and a majority classified as CC.
A ”trial & error” process is then used to allocate a desired service level to each ABC class. The AA class is often given the highest service level and the CC class the lowest. The aggregated service level is calculated and might end up at 94% in the first try, which might not fit the company’s overall goal, such as 95%. To reach the 95% goal, iterative attempts are made using higher service levels for one or several classes (and perhaps reducing some). The new distribution might turn into an aggregated service level of 95.5%. A small buffer (0.5% in this case) is often good, and the service levels for each class are confirmed.
From here, all of the items (or articles) in each ABC class are assigned the same service level target. If we have 10,000 items in stock, then 5400 in the CC class will be assigned the same service level target. Then the safety stock levels are calculated which results in a total inventory investment.
The pitfalls of ABC Inventory classification Let us think about this for a moment. Inventory investment is a consequence of each ABC classes’ service level. Could we have chosen other service levels for the classes and still reach 95.5%? Of course! There are a large number of combinations that could result yield the same result.
How do we then know that the distribution we chose is the most optimal one, achieving a minimum stock investment? The answer is that we don’t know. That is why this method is called ”inventory management” rather than ”inventory optimization”.
Supply Chains are complex, with several connected echelons such as central, regional and local inventories. Also some traditional inventory management software offer an 8×8 ABC matrix per location. The workload to define and continuously maintain these matrices becomes very intense. And, as we said, we don’t know whether or not we have an optimal distribution.
What “best in class” inventory Segmentation looks like today Is there another way to address safety stock computing in 2021? The answer is, of course, yes. A more modern approach exists.
Traditional ABC classification is based on an operational or logistics perspective. There is rarely any connection to sales and marketing or the companies’ customer needs.
Inventory optimization instead looks at the product range and the business. This difference is possible thanks to the use of “service class”. Examples of service classes can be ”accessories”, ”items with a high margin”, ”own-brands”, ”high end brands”, ”critical spare parts”, to name a few. This type of categorization is much more relevant to sales and marketing, who often have very little or no understanding of ABC classification. Every service classification contains items from several ABC classifications (according to the old method) which is irrelevant to true inventory optimization.
Just as in traditional inventory management, aggregated service level goals are also defined in inventory optimization, but per service class instead of ABC class. What happens in the following steps is very different from traditional inventory management. By using ”stock-to-service” curves, the software optimizes every single service level and safety stock level of the SKU-Location, which is also known as mix optimization.
The aggregated service class goal is achieved with a stock investment as low as possible. Instead of inventory planning with ABC classes, every SKU-Location gets a service level to calculate safety stock levels. The inventory optimization software automatically calculates a service level for every SKU-Location that aggregates to the total service level target for the overall service class, achieving “service level optimization“.
True inventory optimization uses “stock-to-service” True inventory optimization models every SKU-Location and summarizes it in a ”stock-to-service” efficient frontier, where the relationship between service level and stock investment are defined. If demand variation or lead time increases, the stock investment (or complexity) must be increased in order to keep the same service level and vice versa.
The result is that every single item in every single location (SKU-Location) is an individual and is analysed and managed as such. In a sense, there can be as many ABC classifications as there are SKU-Location combinations.
This statement is impossible to fit into traditional inventory management and so it is a very challenging one to accept. If every SKU-Location combination was described with dozens of variables (demand variation, standard cost, my order quantity, multiple order quantity, run-out time, lead time, variation in lead time, sustainability, and more), it would unmanageable, instead of just one or two dimensions, as in a traditional ABC classification matrix.
By the way, it’s important to point out that the automated differentiation of service levels in each service class can be set within defined limits. As an example, the aggregated service level goal for “accessories” could be 93% with a lower limit of 89%. The inventory optimization can then subscribe any service level from 89% and above in a way that the stock investment is minimized. For example, “critical spare parts” could have a goal of 99.5% with a lower limit of 99.3%. Reducing the degrees of freedom in each service class (or increasing number of service classes) will lessen the potential of inventory reduction, since competition is reduced. But these reductions in freedom are not critical as long as they aligns with company strategies and customer demands.
Truly modern inventory optimization enables a whole new level of automation of large complex supply chains with hundreds of thousands of SKU-Location combinations where service levels can be guaranteed over time with a minimum of stock investment.
An increased production complexity made The Absolut Company look for a better and more efficient way to manage the production of the most exported food and beverage product in Sweden. With the purchase of the company from the Swedish government in 2008, Pernod Ricard initiated a transformation of the brand. This had a large impact on the manufacturing process.
The Challenge For five years, the number of SKU’s rose by 19% as the number of core flavors increased from 11 to 18 and the number of limited editions went from 2 to 12, an increase by 600%. In contrast to the highly automated production process, production planning process was a manual task. Forecasting and production planning was performed by only one planner, with the help of spreadsheets. But as complexity rose, a change was necessary, and The Absolut Company started to look at alternative set-ups.
Peter Neiderud, Director Supply Chain and QE, understood that this was a major project, necessary in order to move to a new era of Absolut Vodka while honoring traditions and continuing the manufacturing in Åhus.
Increased production complexity
Limited resources for planning tasks
Pressure to secure availability towards the Pernod Ricard market companies
A need to ensure lean principles in production, minimizing environmental impact
The Journey The Absolut Company chose Optilon as a partner after a thorough evaluation of several candidates. A key factor was Optilon’s ability to integrate best-of-breed solutions for production planning, demand forecasting, inventory optimization, and replenishment into a seamless process. Along with this, a key criterion for a new way of working was the ability to automate business processes.
Also, The Absolut Company had clear targets regarding service levels towards its parent company. Optilon proposed a solution that can guarantee product availability according to targets, with minimal investments in finished goods.
“Quality is paramount for us, especially when it comes to production as we leave nothing to chance. We have carried out a thorough evaluation of alternatives and view Optilon as an exceptional solution provider when it comes to improving our logistics and production processes.”
Peter Neiderud, Director Supply Chain and QE, The Absolut Company
The Results Through a high level of automation in planning, proactive decision making, and optimized production sequences, challenges were resolved.
Summing up on results:
Optimized production sequences
Increased overall production efficiency
Increased product availability
Highly automated end-to-end processes
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