Proving value with Inventory Optimisation in SAP IBP

Posted by Carla de Klerk on 04-Sep-2020 12:24:28


(2-3 MIN READ)

Interested in SAP IBP for Inventory but unsure whether your business will realise the benefit? Olivehorse can provide you with a 6 week Proof of Value, with your data to enable understanding of how the solution will deliver benefit to your organisation.

Together we can build your Supply Chain, to enable a fast and informed decision on the benefits of SAP IBP Inventory in your company. At Olivehorse we can provide calculations, analytics and planning views to evaluate the proposed plans versus your current Inventory Plans.


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The graphic above describes common Inventory management problems. In most companies the management of safety stock levels across the supply network is done via a laborious manual process. Either doing it by hand or extracting the data from all the relevant systems and updating an Excel sheet to do the calculations. These processes mostly meet the required Service Level standards however it is time consuming, difficult to fact check the safety stock drivers or perform what if analysis on the new results. Performing inventory planning on Excel spreadsheets often leads to multiple versions of the truth, errors, and no clear reasoning behind decisions made.

With advances in technology, data loads are automated, the approach is standardised to harness the inventory model. The planners time is then about adding value by focussing on adding intelligence to the forecast, performing analysis on the safety stock drivers rather than compiling and checking data which is time-consuming and prevents a more frequent update.

During the POV, Olivehorse will use SAP IBP to provide Inventory Optimisation calculations across the supply network. This Optimisation will be done on a subset of products. Utilisation of standard SAP IBP functionality such as on the fly scenario planning and ease of reporting will be used to evaluate the influence of different parameter settings on the inventory plan. One of the main goals to be achieved would be to reduce the Inventory Levels whilst maintaining or improving service levels across the supply chain. This means that certain products will increase in inventory levels and other will decrease, the total effect of Inventory Optimisation will be evaluated over the entire set of products.

The image below shows the components of the POV and deliverables including design of Planning Views and Dashboards; a detailed analysis on a certain set of products and a playback demo session with the stakeholders.

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For a POV, the scope of SKU’s used is very important. The subset should be a representation of the company’s business and include a variety of scenarios. For example - sporadic demand, stable forecast/demand, long and short lead times and new products. A high level analysis will be done on a large subset of products and a deep dive on the reasons for change in Inventory Profile on a percentage of SKU’s. By doing the high level analysis a clear overview of the possible impact for the company can be achieved. A deep dive analysis is performed on the top and bottom SKU’s to give the planners confidence in the Inventory Optimiser results and rationale for change.

During the POV, the customer identifies goals and success criteria. The reduction in inventory can be evaluated by either reviewing Safety Stock Quantities, Safety Days cover or overall inventory value. Therefore we drive value from the Inventory Optimisation output.

Results from a Customer POV performed this year showed:

  • 5% Reduction in Safety Stock Value by using the Safety Days Valuation method – The targets for this project was to reduce inventory by 2% and maintain the target Service Level at 99.9%
  • 2.1 Days Cover reduction
  • Using SAP IBP Forecast Error calculation methods instead of the values calculated by the customer resulted in a 16% reduction of Inventory, whilst maintaining the Service Level. This specific evaluation was to review the current calculation method with 12 weeks’ of history for forecast error calculation rather than the proposed values using 52 weeks history.

SAP IBP for Inventory can provide many benefits for companies by optimising the stock across the entire supply chain by pooling the risk and identifying possible bottlenecks. The benefits for using Inventory optimisation in a company is not only in the reduction in Inventory levels which reduces the cost and warehouse space requirements but also in the ability to run what if scenarios, real time analysis and increase the utilisation of planning resources to focus on more critical issues.

To discuss further please contact our Inventory Practice Lead:, or complete the form below.

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Carla de Klerk is a SCM consultant and has been with Olivehorse for 2 years. In total, she has 5 years of consultancy experience. She is a Certified IBP Consultant with experience in specifically S&OP, Supply and Inventory.


Read more on: SAP IBP, Inventory Optimisation, Integrated Business Planning