Intelligent Inventory Planning Optimizes Costs

There is a new way to optimize the costs of production planning—synchronize sales, production and inventory planning


The overall optimum reached in this manner is never optimal for the individual case, but represents the lowest common denominator for all products in terms of production volume and timing. Global production cannot freely respond to inventory planning since the production is governed by its own constraints. In many cases, there is an imbalance between product market demand and production capacity in the factories. This can be compensated to some extent by anticipating market demand and producing specific vehicles ahead of time. Available volumes can be increased, but the need for higher fixed capital must be accepted.

Currently, almost all carmakers feel as if they are reading from a crystal ball because they may only use known production volumes as the basis for determining available vehicle supply for each market. In many cases, this is a pure push process that works without feedback from the local markets or even the dealers. The ability to use integrated planning processes that take into account delivery times and varying production characteristics does not exist for most manufacturers.

The current process is complex and labor-intensive, requiring a large number of associates attending to optimal production stocks, creating market forecasts, or establishing a link between production and sales. Data from sales planning, dealer inventory information and manufacturing exist, but are not easily linked for analysis. Despite numerous efforts, this leads to an inconsistent picture and a non-uniform basis for planning.

The more intelligent approach is to perform integrated planning at various levels. The process may start with the local dealer creating a forecast for himself and his local market, and then continue with distributors and importers developing regional forecasts. Finally, the forecast extends to central sales planning to create forecasts for an entire country or region. It’s critical to communicate expectations through clearly defined rules using a unified system. This information can lead to setting expectations related to government requirements or other cost impact items, such as vehicle taxes, oil price developments and target events that may drive sales volumes, such as incentives or marketing activities.

The expected effects of these events can be collected systematically and shared across a common system. This can then be converted into the input used to help determine production quantities. This is far from trivial. To perform the necessary calculations and evaluations requires complex software.

The sales volumes that have the highest probability can be determined with the highest reliability using the system “lead time-effect-expected value.” The system models the bandwidths in which production, logistics and inventory are planned. If sales uses this method to generate a forecast with validated uncertainty, then there is a quantified basis for the data provided to the planning and production departments. Together, the two departments can then decide what to produce so that the corporation can be flexible in responding to the changing market requirements.

Event-Driven Forecasting: Is It Magic?

Anticipated events have a start time, duration and a varying intensity with which they impact production processes. Expected sales volumes and scheduled production quantities are analyzed with respect to their impact on market inventories, and then planned together. This includes the in-transit numbers between production and markets with consideration of the current market inventories, from which one can use to predict future finished product inventories in each region or sub-region. This creates a planning input that is useful for sales and production planning since the actual sales results determine the success of a product.

If using flexis software, data entry at the dealer is done through a web-based user interface, from which the information is transferred to the flexis system. The logic, which aligns inventories, and projects future production and sales volumes, is modeled in this software system. Actual stock levels and expected values are determined for the sales organization through information from corporate sales, market and regional managers, and local dealers.

flexis software helps to create an optimal production program after considering all variables. The typical planning horizon is up to one year, but may extend even further, with later months planned with less detail since many new programs are still in the maturation process. For its implementation, the system uses information already accessible operationally, such as production plans and sales activity data. Since this data is available and only needs to be processed in a standard fashion, the integration of the system into existing solutions usually takes only a few months.

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