Modern manufacturers already faced many challenges – intense competition, evolving customer expectations, demand variability, inventory proliferation, and stringent regulations. During the past 18 months, they’ve added one more to that list: the risks associated with unplanned catastrophes and black swans. Effective inventory management, a robust supply chain, and smart inventory planning are no longer necessary simply to survive in a complex environment. The pandemic has shown that they also provide a critical foundation for their adaptable and resilient future. These issues are driving the urgency for digital transformation and Industry 4.0.
The Industry 4.0 Vision
Industry 4.0 goes beyond smart manufacturing. Done well, it combines physical production and operations with smart digital technology, machine learning, and big data. The ultimate aim is to create a holistic and connected ecosystem that focuses on optimizing value across manufacturing and supply chains. The complex but digitized operating model enables companies to stay connected with real-time insights into customers, products, competitors, and the overall business climate.
SAP’s strategy for Industry 4.0 is more than smart manufacturing in factories and plants. It is connecting production with processes across the supply chain. Industry 4.Now is SAP’s strategic investment to help customers transform the manufacturing business and become future ready. It’s a vision for more unique and disruptive outcomes spanning various industry verticals. SAP’s Industry 4.Now revolves around four themes: Intelligent Products, Intelligent Assets, Intelligent Factories, and Empowered People.
Multi Echelon Inventory Optimization for Smarter Planning
Conventionally, spare parts planning is done through various software applications in an isolated manner. The critical machine level nuances and inputs are not modeled as part of the problem. This delivers siloed planning recommendations like safety stock norms that may not be pragmatic to implement and still need significant manual intervention. An approach is needed that addresses this gap to make spare parts an integral component of the connected network (an intelligent asset network) within the principles of Industry 4.0.
Intelligent assets can be leveraged along with integrated business planning to deliver optimized industrial replaceable items using the Multi Echelon Inventory Optimization (MEIO) capabilities of SAP IBP. This approach enables modeling of MEIO for spare parts to calculate the recommended safety stock. MEIO helps organizations optimize inventory levels across distribution networks with multi-echelon planning – even in a global organization. A MEIO solution suggests the right levels of inventory at each stage of the supply chain by simultaneously optimizing inventory across multiple echelons and locations.
For the multi-echelon algorithm to work effectively within the SAP IBP application, there are three critical parameters: service level, lead-time variability, and demand variability. Figure 1 provides a quick overview of the MEIO model that can compute safety stocks as one of its critical outputs after optimization. A supplier node is connected with the warehouse, which in turn is integrated with the customer node (or customer facing node) in a supply network.