Improve Inventory Performance with Discrete Optimization

Illustration of chart with magnifying glass

I am often asked how to perform discrete optimization with SAP ERP. For those of you who are unfamiliar with the term, discrete optimization is about deriving the mathematically optimal solution to minimize cost and maximize service at the lowest level of the supply chain. Each material/plant combination has its own demand and supply history, biases and performance. Discrete optimization moves beyond general rules of thumb like, “all materials should have a 95 percent service level or a two week safety stock,” and finds the unique and best inventory strategy at the atomic level that will ultimately lead to an optimized inventory system. Discrete optimization is critical in wringing out the last drop of excessive, unproductive inventory in your supply chain.

Until recently, there have been roadblocks to discrete optimization due to the amount of computing power required, and the cost of discrete optimization engines that usually reside outside of core ERP. Fortunately for SAP customers, there is an affordable, easy-to-implement answer; G.I.B Dispo-Cockpit Controlling (DCC). DCC delivers discrete optimization functionality within core SAP ERP. Companies running DCC today are able to drive millions of dollars out of their supply chain, all while improving product availability. This has been proven by long-term customers of Dispo-Cockpit Controlling. Gunnar Clavey, Head of Tactical & Commercial Planning, SATAIR Group, Airbus, reported that “stock evolution fell from January 2009 to June 2011 from 62M€ to 54M€ … the main contributor to the stock reduction was Dispo Cockpit. “.

Inventory is the proxy for information. The less information you have about demand and supply, the more inventory you need to buffer against the uncertainty. If you are running SAP ERP today, then you have the full transactional history of your material movements. If this information resides in ERP, then the optimization process should happen in ERP as well. There is no value to extracting data out of ERP to do mission-critical computations. With DCC, real-time optimization, simulation and performance reporting are available inside of SAP ERP today.

This is part three in an itelligence blog series exploring Demand Planning and Inventory Optimization within SAP. Follow the series:

Part 1: Improving Demand Planning and Inventory Optimization inside SAP ERP

Part 2: Improve Demand Forecasting within SAP ERP and Reduce Inventory Cost

Part 4: Optimize SAP Procurement While Balancing Vendor Restrictions and Excess Inventory in Your Network

Part 5: Top 4 Supply Chain Issues & Fixes in SAP that Pay Back

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