Thursday, 13. December 2007

Achieving Flexibility and Supply Reliability with BayAPS®

Dynamically Control Inventory

In process industry, high service level and production flexibility paralleled by high utilization of production capacity are critical success factors. The software suite BayAPS^® of Bayer Technology Services (BTS) ensures reliability of deliveries through flexible inventory control. Numerously, BTS has successfully realized its concepts for the optimization of complex supply networks. For us, optimization means minimal production and distribution cost but simultaneously maintain high flexibility and service level.

Optimizing Lot and Campaign Sizes

As a basic principle the optimization of lot or campaign sizes strives for minimizing the induced combined cost for production and storage. Small lot sizes may imply long and unproductive change-over time to set up a multi-product manufacturing line. This reduces the spare time of the line which could be used to flexibly react on changes in the market or unexpected demand. Large lot sizes, in contrast, generate high inventories and thus the need for high storage capacity. Even more they constitute capital lockup that generates additional cost and risk with negative consequences for the valuation of the company.

In practice, implementing a lot size optimization requires to account for several constraints of technical, capacitive, or organizational nature. BayAPS^®LS from BTS optimizes the lot sizes adhering to these practical life constraints. With success: For example in a life science product segment the utilization of the production lines could be increased by 15%, at the same time reducing the involved cost by 500,000 EUR.

Optimizing the Global Allocation of Safety Stock

In worldwide operating companies such as the Bayer subgroups, production and distribution proceed over several multi-level global networks. Often each level holds inventories for distinct reasons, for example to be ready to deliver to the next level even if demand and replenishment are uncertain. As a consequence, the total level of inventory increases. However, it is only the service to the end customer that is relevant for the perception of the company in the market. BayAPS^®-TIP fully taps the potential inventory reduction in multi-level supply networks. The underlying non-linear optimization problem is solved by an innovative software employing dynamic programming and genetic algorithms.

A further project example from the life science industry shows that the calculated potentials are indeed achievable in reality. In this project, inventory could be reduced by 1,000,000 EUR just by allocating strategic safety stock only in selected nodes of the supply network. The optimal allocation strategy for a product group depends heavily on whether the final product is for one ore more countries.

That inventory optimization means more than just inventory reduction is indicated by a project in the chemical industry. Here, re-arranging the safety stocks increased the service level by 10%.

Up to 50% Reduction by Dynamic Inventory Management

Dynamic inventory management controls inventories setting sufficient and feasible inventory targets. These targets are dynamic because they anticipate demand fluctuations and demand uncertainty over the time as they result for example from seasonal influences. The inventory targets are sufficient because they guarantee deliveries to the end customer even in the case of demand peeks or loss of production. And finally, the inventory targets are feasible because they bring forward production or sourcing to provide for any bottle necks, if necessary.

BayAPS^®-TIP allows for this type of inventory target optimization in global production and distribution networks. For each product-warehouse combination in a supply network, the software calculates the sufficient and feasible inventory target that ensures the required service level at minimal cost. Specifics of the process industry can be modeled, for example co-products, by-products or restricted shelf life or suitability for storage.

Project Expertise

The projects run by BTS are structured into several phases. In the beginning inventory drivers and reduction potentials are identified in the supply network. They found the basis to focus the inventory optimization on where the highest leverage effect can be expected. This often means optimization of lot sizes and safety stock. But BTS also identifies potential resulting from production technology or business processes. In a productive environment, BayAPS^®-TIP is linked with the existing ERP systems (such as SAP R/3, SAP APO) in order to submit inventory or coverage targets within the usual planning frequency. In projects with strategic focus, the consequences of modified capacities by increasing production.