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NIBCO realized significant inventory asset savings with advanced inventory optimization capabilities from IBM
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Business impact This international manufacturer streamlined its inventory management process with a customized approach to inventory control. The IBM solution helps the company better meet customer requirements and expectations, and prepare for growth.
Issue On-time and complete orders are essential criteria for doing business with wholesalers and retailers that are seeking flow-control devices. NIBCO – a worldwide manufacturer of fittings, valves, actuators and support systems – maintained inventory at its manufacturing plants, as well as in its distribution centers, and needed a more effective way to determine how much inventory of each product should be stocked at each location. With an international network and an increasing number of products, the company’s inventory management reporting process was labor-intensive and time-consuming, and it lacked an automated inventory target-setting process.
Executive summary NIBCO was increasing its business with large high-volume retailers, which required on-time and complete orders. Meanwhile, the NIBCO product line was growing – new products, requiring new pools of inventory, demanded that NIBCO improve inventory management to maintain a neutral position in total inventory investment.
At the time, NIBCO used printed inventory management reports to drive manufacturing plans in its demand-pull environment. Creating these reports consumed significant amounts of time and system resources, relying heavily on flat files, database and spreadsheet software, and e-mails. Additionally, the management reports were difficult to maintain as new products were developed and product changes occurred – not to mention changes to the software products used to create them.
The inventory target-setting process was infrequently used because of the time and effort it took to gather data and conduct what-if analysis. Product-specific inventory targets often did not change as time progressed and the product’s demand cycle changed.
NIBCO wanted to improve its inventory target-setting process to better meet customer expectations and requirements. In addition, the company sought to streamline its manufacturing process and reduce on-hand inventory levels by better aligning inventory targets with product demand.
What IBM did IBM Global Business Services designed a cost-effective solution to NIBCO's inventory planning issue, using the company's previous investment in SAP NetWeaver Business Intelligence (BI) capabilities. IBM researchers delivered customized inventory optimization algorithms, which NIBCO deployed to help streamline inventory management. The IBM researchers provided a technical document that described the algorithms and mechanics to perform the computations systematically. IBM supplied the computational approach for what was to be accomplished in the solution, and NIBCO developed a plan for how it would be done. The result was a closed-loop solution within the company's SAP R/3 application suite.
Capabilities applied The solution featured a tool for evaluating alternative inventory analytical models (what-if scenarios) and algorithmic definitions. It also included an approach for calculating desired part-level inventory targets (including SKUs) and a mathematical approach to help smooth the extreme demand peaks.
After developing a method to solve NIBCO's inventory management issues, IBM Global Business Services called on IBM researchers who specialize in inventory optimization algorithms to develop a solution specifically for this client. These scientists – skilled members of the IBM Global Business Services/IBM Research On Demand Innovation Services (ODIS) partnership – delivered algorithms designed to reduce inventory levels and help NIBCO save time and money.
NIBCO realized significant inventory asset savings within three months of implementing the solution. In addition, the company projects additional savings within one to three years through additional reductions in inventory levels. This capability also is expected to improve inventory availability for customer orders. The time to compute inventory targets has also been reduced from about eight hours to mere minutes, allowing for more frequent inventory planning and optimization evaluations.
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