FiNO Inventory User Guide by Abhishek Nayar PDF

FOUNDATIONS IN
NETWORK
OPTIMIZATION:
INVENTORY
Practical Applications
Foundations in Network Optimization: Inventory

Inventory Modeling - Studying Network Inventory .................................................................................... 3
Introduction .............................................................................................................................................. 3
Background ........................................................................................................................................... 3
Motivation............................................................................................................................................. 3
Phase I ....................................................................................................................................................... 7
Model Overview .................................................................................................................................... 7
Step 1: Review Basic Tables .................................................................................................................. 7
Step 2: Define Constraints .................................................................................................................. 10
Scenario 1: Constrained Baseline........................................................................................................ 14
Scenario 2: Optimal Baseline .............................................................................................................. 19
Scenario 3: Choose 5 DCs .................................................................................................................... 21
Output Analysis ................................................................................................................................... 33
Further Considerations ....................................................................................................................... 38
Phase II .................................................................................................................................................... 41
Model Overview .................................................................................................................................. 41
Step 1: Generate Multi-Periods .......................................................................................................... 41
Step 2: Update Model Elements and Policies ..................................................................................... 42
Step 3: Review and Update Constraints ............................................................................................. 43
Output Analysis ................................................................................................................................... 45
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Inventory Modeling - Studying Network Inventory

Introduction
Background
Classic Dairy is a popular ice cream brand in the United States. The company is undertaking a strategic
initiative to identify savings opportunities for this business unit. Financial statements indicate that
inventory accounts for a significant portion of the costs. As the supply chain manager at Classic Dairy,
you are responsible for assessing the current distribution footprint for the business and identify
opportunities to reduce inventory costs in the network.
The Network
Classic Dairy produces its ice cream at three manufacturing plants located in Green Bay, Houston and
Oakland. The manufacturing plants in turn ship product to six regional DCs which supply customer
demand.
About 95% of its revenue comes from its line of classic flavors while the remaining is distributed across
its line of gourmet flavors and ice cream cakes. Demand pattern for all products show a similar seasonal
trend of having spikes during the summer months.
The bottom line reads that currently inventory accounts for almost double that of transportation.
The time horizon being considered here in one year.
Motivation
You recall that Transportation team at Classic Dairy had undertaken an initiative two years ago to reduce
transportation costs. While this project was successful and led to a reduction in transportation costs, it
increased total inventory across the network.
Keeping this in mind, you first want to perform a holistic analysis to identify feasible solutions that not
only reduce inventory in the system but also bring down total cost in the network while maintaining
acceptable levels of service.
You’ve chalked out a plan to approach this project in two phases.
Phase I: Build a single period model to first analyze the effect of changes to total inventory (through
inventory turns as input) in the network.
Phase II: Since ice cream sales experience seasonality in demand, expand the scope of the model to
monthly periods within the same time horizon and focus on pre-build inventory in the system.
Going back to your training, you know that pre-build inventory and turn-estimated inventory are un-
related buckets of inventory. Turn-estimated inventory is the average inventory at a site for a product
based on throughput and turns whereas pre-build is the amount of inventory held ahead of the demand
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period to ensure against known demand seasonality. Therefore, you would need to build separate
models for each phase of your project.
Before getting started, you want to understand how service should be defined and what level of service
is deemed acceptable. Based on past contracts, service level agreements to customers have historically
guaranteed orders being fulfilled within 2 – 3 days of being placed. Therefore, stakeholders place the
service level at being able to satisfy at least 85% of demand within two days.
Having already created a basic model of the network, you review some of the assumptions and identify
elements that you need to add to this model.
Assumptions –
• Since the Classic Flavors account for 95% of the revenue and product characteristics and
demand across the individual flavors in this group are similar, all SKUs are aggregated into one
product – Classic Flavors.
• Customer demand is aggregated to a three digit zip level.
• Transportation costs modeled on distance basis (i.e. cost per unit mile) and shipment size is
modeled on weight basis.
• Inventory at DCs is only considered. Plants do not hold any inventory.
Let’s quickly explore what you’ll be doing in each phase.
Phase I
Since reducing inventory costs is one of the primary goals of this model, you need to incorporate
inventory at the distribution centers into the model. The ideal way to do this for a network study is to
model this through inventory turns as an input.
In this model, you want to
1. Build the baseline to replicate historical flows.

2. Run an unconstrained baseline or optimal baseline to identify low hanging savings opportunities.
3. Run three additional scenarios – choose 5 DCs, choose 4 DCs and choose 3 DCs to study the effect of
consolidation on inventory and transportation costs as well as service.
Optimization Objective: Minimize total cost
You envision an output matrix to present results to the management comparing key metrics to quickly
visualize impact across the scenarios.
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Weighted Percent of Transportation Inventory Facility Fixed Total Cost

Average Demand Cost Holding Cost Operating
Distance within 800 Cost
Scenario (miles) Miles
Constrained Baseline
Optimal Baseline
Choose 5 DCs
Choose 4 DCs
Choose 3 DCs
Phase II
In this model, you want to understand when product needs to be produced ahead of season to account
for production capacity constraints and inventory capacity constraints.
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Phase I
Model Overview
Now it’s time to put this in action. Make sure you’ve copied InventoryExercises.scgz to your machine, as
this is the file you’ll be working with.
Restore Existing Model

1. With Supply Chain Guru open, select Projects on the left navigation pane.
2. Select the Open Archive button located in the top right corner of the screen.
3. Browse to the location where the archive is saved, select the InventoryExercises.scgz file and click
Open.
This will create a new project named Inventory_Exercises on the Projects page.
4. Select the project and double-click to open.
5. Within this project you can see two files –
a. Inventory_Exercise_1, which is a Supply Chain Guru Model file with the extension .scgm
b. Shipment, which is an Excel Worksheet with the extension .xls
6. You first want to review the model, so select the model file and double click to open.
Thinking back to your training, you begin to evaluate which input tables you need to populate or modify.
Step 1: Review Basic Tables

The model opens with the Input Tables open in the left navigation pane. Notice that the model is
currently set to Network Optimization under Technology Mode.
Customers
1. Select Customers located under Model Elements on the left navigation pane. Double-click to open.
There are 144 customers defined in this table.
The customers have been aggregated by 3 digit zip-code and all records have Latitude and Longitude
fields populated thanks to your earlier work in a previous project using the Geocoding Tool. No changes
are required.
2. Close the Customers table.
Sites
1. Select Sites located under Model Elements on the left navigation pane. Double-click to open.
There are 9 sites defined in this table – 6 DCs and 3 plants – all of which are of type Existing Site.
You can see that just as with customers, all sites are also populated with latitude and longitudes. You
review the map to get a quick visual on the geography of the existing network.
2. Close the Sites table.
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Maps
1. Navigate to the Analyze icon to the left of the navigation pane and select it. This expands to show
you the list of items under this section.
2. Select the second icon – the Maps icon under the Analyze section to access maps on the left
navigation pane.
You already have a map called ‘Network Map’ created that is listed in the left navigation pane.
3. Double-click to open this map.
The customer and site markers are preserved as you saved them with your last project using the colors,
shapes and sizing that your management team likes.
Close the Network Map tab.
Products
1. Select Products located under Model Elements on the left navigation pane. Double-click to open.
There is only one product defined in this table named ‘Classic Flavors’.
Since the Classic Flavors account for 95% of the revenue and product characteristics across the
individual flavors in this group are homogenous, all SKUs are aggregated into one product – Classic
Flavors. No changes are required.
2. Close the Products table.
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Customer Orders
1. Select the Customer Orders table located under Transactions and Forecasts in the left navigation
pane. Double-click to open it.
2. Review the data in this table.
You observe that the demand has been aggregated by customer and product on a monthly basis.
3. Close the Customer Orders table.
Production Policies
1. Select the Production Policies table located under Production in the left navigation pane. Double-
click to open it.
You have one policies which defines that the product Classic Flavors can be made at all plants.
3. Close the Production Policies table.
Customer Sourcing Policies

1. Select the Customer Sourcing Policies table located under Sourcing in the left navigation pane.
Double-click to open it.
You have one policy defined to include the existing DC-Customer assignments. Each customers can
source the product from every DC.
3. Close the Customer Sourcing Policies table.
Site Sourcing Policies

1. Select the Site Sourcing Policies table located under Sourcing in the left navigation pane. Double-
click to open it.
You have one policy defined to include the existing Plant-DC assignments. Each DC can source from
every plant.
3. Close the Site Sourcing Policies table.
Transportation Policies
As with production and sourcing, transportation policies are also defined in this model.
1. Select Transportation Policies located under Transportation on the left navigation pane. Double-
click to open.
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You have already incorporated the transportation rates that you received from the logistics team into
the model. No changes are required.
3. Close the Transportation Policies table.
Inventory Policies
1. Select Inventory Policies located under Inventory on the left navigation pane. Double-click to open.
2. There are six inventory policy defined in this table.
You observe that Inventory policies exist for each site – product combination. However, inventory turns
values have not been populated.
You have received the following Inventory turns and holding cost percentage information for the DCs
from the Distribution and Warehousing department –
Distribution Holding Stocking Cost Loading Cost Throughput levels Inventory

Center Cost % (per unit) (per unit) Turns
0 – 10,000,000 6
Atlanta 27
10,000,000 – 16,000,000 8
$0.017 $0.015 16,000,000 – 22,500,000 10
Denver 25 22,500,000 – 25,000,000 12
Above 25,000,000 15
Chicago 0 – 12,000,000 6
Harrisburg 25 12,000,000 – 18,000,000 8
Sacramento $0.017 $0.015 18,000,000 – 25,000,000 10
25,000,000 – 30,000,000 15
Dallas 27
Above 30,000,000 18
Since the stocking cost and loading cost are the same across all distribution centers, you choose not to
add them to your model as they will not have an effect on any decision the model makes.
3. Select the Inventory Turns drop-down for each record and use the step function builder to populate
the inventory turns based on the information above.
4. Populate the Inventory Carrying Cost % to the corresponding DCs.
5. Save and close the Inventory Policies table.
Step 2: Define Constraints

Flow Constraints
In order to reflect the baseline or historical conditions, the model needs to be constrained to mimic
historical performance. You decided to model this via the flow constraints table to enforce historical
customer facing flows in the model.
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You decide to use the shipments table that you’ve been provided to populate the Flow Constraints table
in Supply Chain Guru. In a previous analysis, shipment information had already been aggregated over
past year’s data and available as a separate sheet in the same Shipment.xls workbook.
1. Navigate to the directory where you saved your model and open Shipment.xls in Excel. Open the
sheet titled ‘Analysis’. Note the population of the Source, Destination, Product and Qty fields.
2. Type Flow into the filter bar of the left navigation pane and select Flow Constraints located under
Transportation. Double-click to open. Note that the table is empty.
3. In this table, you need to populate Period, Source, Destination, Product, Constraint Type, Constraint
Value, Constraint Period and Status fields.
4. Select the Export button on the table toolbar to export this blank table to excel so you can populate
these fields and import it back to Supply Chain Guru.
5. Copy paste the Source, Destination, Product and Qty information from the Analysis sheet in
Shipment.xls to the Source, Destination, Product and Constraint Value fields in the exported flow
constraints excel file.
6. You want to ensure that the flows from Source to Destination for the Product specified is a fixed
quantity as defined in the Constraint Value field over the model horizon. Therefore, you populate
the following fields to these default values for all records in this excel sheet –
Period = (ALL_Periods)
CollectionBasisPeriodName = Set (This indicates type All to affect the Horizon)
Constraint Type = Fixed
Constraint Period = Period Length
Status = Exclude
7. Save the excel file either by clicking the Save button or pressing ‘Ctrl+S’.
8. Navigate back to the Flow Constraints table in Supply Chain Guru and select the Import button on
the table toolbar.
A message box should appear indicating that 144 rows will be imported and all existing data be
replaced. Click OK.
A message will appear indicating that 144/144 records were successfully imported.
9. Verify that 144 rows were imported to the Flow Constraints table and all the necessary fields
populated.
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10. Close the Flow Constraints table.
Inventory Constraints
In this model, you will also need to constrain the DC capacity to hold inventory. Each of the existing
facilities has 250K cubic feet of storage, but only 80% is available for usage for an operational basis.
Actual capacity should be limited to 208,400 cubic feet at each of the existing facilities.
1. Type Inventory into the filter bar of the left navigation pane and select Inventory Constraints
located under Inventory. Double-click to open.
2. You need to define one constraint as follows –
Period = (Filter) (ALL_Periods)

• Select Apply to: All
Site = (Filter) All DCs
• Select Apply to: Each
Product = Classic Flavors
Constraint Type = Max
Constraint Value = 208400 CFT
Pre-Build Stock = Exclude
Safety Stock = Exclude
Cycle Stock = Exclude
Turn-Estimated Stock = Include
Status = Exclude
3. Save and close the Inventory Constraints table.
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Production Constraints
You also need to incorporate plant capacities into the model. Of the many ways this can be done, you
choose to model these are production constraints and constrain the capacity at the plants based on
information received from the plant managers taking into account the operational efficiency.
Based on your calculations you have averaged production capacity at each plant on a monthly basis
(considering uniform capacity each month regardless of number of working days) and yearly basis as
follows:
Facility Monthly Production Yearly Production

Capacity Capacity
Green Bay 4,375,000 52,500,000
Houston 4,000,000 48,000,000
Oakland 2,500,000 30,000,000
1. Type Production into the filter bar of the left navigation pane and select Production Constraints
located under Production. Double-click to open.
2. You need to define three constraints – for the three manufacturing plants.
3. Create the first constraints as follows –

Site = Plant_Greenbay
Constraint Value = 52500000 (EA)
Status = Exclude
4. Create the next constraint as follows –

Site = Plant_Houston
Status = Exclude
5. Create the final constraint as follows –

Site = Plant_Oakland
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Status = Exclude
6. Save and close the Production Constraints table.
Scenario 1: Constrained Baseline

You have modeled all the necessary elements and constraints to reflect the current state. You can now
test this and compare against validation reports.
In this scenario, you are going to constrain the model to mimic historical performance by enforcing flow,
inventory and production constraints.
You first begin with creating the scenario items that constitute the scenario.
Scenario Items
1. Navigate to the Explore icon to the left of the navigation pane and select it. This expands to show
2. Select the second icon – the Scenario Items icon under the Explore section to access scenario items
on the left navigation pane.
To create a new scenario item, select the New Scenario Item button. This will open up a new tab named
Scenario Item.
3. Define the first scenario item to include the fixed DC to customer flow constraints as follows –
Name = Include Baseline Flow Constraints

Table = Flow Constraints
Filter =
Field = Status
Operator = “=”
Values = Include
Save the Scenario Item and close the tab.
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4. Define the next scenario item to include the inventory constraints that set the maximum available
space at each DC as follows –
Name = Include Warehouse Space Constraints

Table = Inventory Constraints
Filter =
Field = Status
Operator = “=”
Values = Include
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5. Define the final scenario item to include the production constraints that limits the capacity at the
plants as follows –
Name = Include Production Constraints

Table = Production Constraints
Filter =
Field = Status
Operator = “=”
Values = Include
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These are the only item you will need for the Constrained Baseline scenario.
Scenarios
1. Select the first icon – the Scenarios icon under the Explore section to access scenarios on the left
navigation pane.
2. Select the New Scenario button. This will open up a new tab named Scenario.
3. Name the scenario ‘Constrained Baseline’.
In the scenario tab you have two lists – one for available items and one for selected items.
4. You only have three available items. Select all of these and drag it over to the selected items list.
5. To view the description of the scenario item, toggle the Item Description Hidden switch located at
the top right corner of this tab.
6. Save the Scenario and close the tab.
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You are now all set to the run this scenario.
Running the scenario

1. Select the Run button at the top right corner of the Supply Chain Guru application to access the
Launch Pad.
2. Ensure that the Select Technology and Select Problem Type options have been set to Network
Optimization.
3. Verify that the model horizon is from 01/01/2016 to 12/31/2016.
4. Under Select Scenarios, ensure that only Constrained Baseline is selected.
5. Select the Run button to run this scenario.
6. Once the scenario successfully solves, review the outputs.
Questions
1. What is the weighted average distance from DCs to customers?
2. What percent of demand is covered within 2 days or 800 miles of service?
3. What is the total transportation cost?
4. What is the total inventory holding cost?
5. How much is the turn estimated and in-transit inventory?
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Scenario 2: Optimal Baseline

In this scenario, you want to exclude the flow constraints so that you can evaluate optimal sourcing
decisions while still limiting inventory and production at the sites. This is the same as the Constrained
Baseline scenario with the exception of the Include Baseline Flow Constraints item.
Scenarios
2. Select the first icon – the Scenarios icon under the Explore section to access scenarios on the left
navigation pane.
3. Select the Constrained Baseline scenario to highlight it and select the Copy icon next to the name.
This creates a new scenario with a default name of Constrained Baseline (1).
4. Rename this scenario to read Optimal Baseline and press Enter.
Notice that since this scenario is a copy of the Constrained Baseline scenario, it contains all three items
in the Selected Items list.
5. Select the Include Baseline Flow Constraints scenario item in the Selected Items list and drag it back
to Available Items so that you now see only two items selected for this scenario.
You can use the Item Overview button located in the left navigation pane to view which items are being
used in which scenario and vice versa.
6. Save the scenario and close the tab.
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Launch Pad.
Optimization.
4. Under Select Scenarios, ensure that only Optimal Baseline is selected.
Questions
3. What is the total transportation cost? Does this increase or decrease compared to the constrained
baseline?
4. What is the total inventory holding cost? Does this increase or decrease compared to the
constrained baseline?
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Scenario 3: Choose 5 DCs

In this scenario, you want to evaluate the effect of constraining the number of DCs to five. You will be
building off the Optimal baseline scenario and adding scenario items to include a site constraint
constraining the number of open DCs to 5, set Status of all DCs to ‘Consider’ and Type of all DCs to
‘Potential Site’.
You first need to define the site constraint.
Site Constraints
1. Navigate to the Build icon to the left of the navigation pane and select it. This expands to show you
the list of items under this section.
2. Select the first icon – the Input Tables icon under the Explore section to access input tables on the
left navigation pane.
3. Type Site into the filter bar of the left navigation pane and select Site Constraints located under
Advanced Constraints. Double-click to open.
4. Create a new record as follows –

Site = (Filter) All DCs
Constraint Type = Fixed (you want exactly x number of sites, where x is the constraint value)
Constraint Value = 5
Status = Exclude
This constraint will be triggered through scenario items.
5. Close the Site Constraints table.
You can now begin defining the scenario items you need for this scenario.
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Scenario Items
3. To create a new scenario item, select the New Scenario Item button. This will open up a new tab
named Scenario Item.
4. Define the first scenario item to set the Status of all DCs in the Sites table to consider as follows –
Name = Change DC Status to Consider

Table = Sites
Filter = “All DCs”
Field = Status
Operator = “=”
Values = Consider
5. Define the next scenario item to change the Type of all DCs in the Sites table to Potential Site as
follows –
Name = Change DC Site Type to Potential

Table = Sites
Filter = “All DCs”
Field = Type
Operator = “=”
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Values = Potential Site

6. Define the final scenario item to include the site constraints that limits the number of open DCs to 5
as follows –
Name = Include Site Constraint

Table = Site Constraints
Filter =
Field = Status
Operator = “=”
Values = Include
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Note: You are setting the status of these potential facilities to consider so that the model can
choose which of the DCs to pick based on the number for Constraint Value specified in the Site
Constraints table.
These are the only additional items you will need for the Choose 5 DCs scenario.
Scenarios
1. Select the Scenarios icon under the Explore section to access scenarios on the left navigation pane.
2. Select the Optimal Baseline scenario to highlight it and select the Copy icon next to the name.
3. This creates a new scenario with a default name of Optimal Baseline (1). Rename this scenario to
read Choose 5 DCs and press Enter.
Notice that since this scenario is a copy of the Optimal Baseline scenario, it contains two items in the
Selected Items list.
4. Select the three scenario items you just created in the Available Items list and drag it over to
Selected Items so that you now see five items selected for this scenario.
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Launch Pad.
Optimization.
4. Under Select Scenarios, ensure that only Choose 5 DCs is selected.
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Questions
1. Which sites were selected in this scenario? Which output table would you use to get this
information?
4. What is the total transportation cost? Does this increase or decrease compared to the optimal
baseline?
5. What is the total inventory holding cost? Does this increase or decrease compared to the optimal
baseline?
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In this scenario, you want to evaluate the effect of constraining the number of DCs to four. This is the
same as the Choose 5 DCs scenario with the addition of a new scenario item that changes the Constraint
Value to 4 in the Site Constraints table.
You will first create the scenario item.
Scenario Items
4. Define the scenario item to set the Constraint Value in the Site Constraints table to 4 as follows –
Name = Change Constraint Value to 4

Filter =
Field = Constraint Value
Operator = “=”
Values = 4
5. Save the Scenario Item and close the tab.
These is the only additional item you will need for the Choose 4 DCs scenario.
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Scenarios
2. Select the Choose 5 DCs scenario to highlight it and select the Copy icon next to the name.
This creates a new scenario with a default name of Choose 5 DCs (1).
3. Rename this scenario to read Choose 4 DCs and press Enter.
Notice that since this scenario is a copy of the Choose 5 DCs scenario, it contains five items in the
4. Select the scenario items you just created in the Available Items list and drag it over to Selected
Items so that you now see six items selected for this scenario.

Launch Pad.
Optimization.
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Questions
1. Which sites were selected in this scenario?
baseline?
baseline?
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In this scenario, you want to evaluate the effect of constraining the number of DCs to three. This is the
same as the Choose 5 DCs scenario with the addition of a new scenario item that changes the Constraint
Value to 3 in the Site Constraints table.
You will first create the scenario item.
Scenario Items
4. Define the scenario item to set the Constraint Value in the Site Constraints table to 3 as follows –
Name = Change Constraint Value to 3

Filter =
Field = Constraint Value
Operator = “=”
Values = 3
5. Save the Scenario Item and close the tab.
These is the only additional item you will need for the Choose 3 DCs scenario.
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Scenarios
2. Select the Choose 5 DCs scenario to highlight it and select the Copy icon next to the name.
This creates a new scenario with a default name of Choose 5 DCs (1).
3. Rename this scenario to read Choose 3 DCs and press Enter.
Notice that since this scenario is a copy of the Choose 5 DCs scenario, it contains five items in the
4. Select the scenario items you just created in the Available Items list and drag it over to Selected
Items so that you now see six items selected for this scenario.
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Launch Pad.
Optimization.
Questions
1. Which sites were selected in this scenario?
baseline?
baseline?
Now that you have run all the scenarios, you can use the visualization tools available in Supply Chain
Guru to design visualizations that can aid in the communication of results to management.
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Output Analysis
Once the scenarios have run successfully, you can now look at some of the results of the optimization
run.
You can use maps, views, graphs, scenario comparisons and dashboards to create powerful
visualizations that can aid in communicating the model results to management.
2. To see which facilities were chosen, open the Network Site Summary table.
You can use the filters to quickly identify Site Names for each scenario, but you decide to create a
view so that you can review the allocation of volumes.
Scenario Atlanta Chicago Dallas Denver Harrisburg Sacramento

Constrained
Yes Yes Yes Yes Yes Yes
Baseline
Optimal
Yes Yes Yes Yes Yes Yes
Baseline
Choose 5
Yes Yes Yes No Yes Yes
DCs
Choose 4
No Yes Yes No Yes Yes
DCs
Choose 3
No Yes No No Yes Yes
DCs
Views: Throughput Level by Site across Scenarios

Configuration
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View
You also decide to review the maps to visualize the flows.
Maps
Scenario: Constrained Baseline
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Scenario: Optimal Baseline
Scenario: Choose 5 DCs
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Analysis
You use the risk exposure summary table to identify the weighted average distance in miles.
Alternatively, you can also use the Customer Flows table to conduct your analysis. This table has the
fields you need to calculate the results for the scenarios:
∑(𝐹𝑙𝑜𝑤 𝑈𝑛𝑖𝑡𝑠 𝑥 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒)

𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒 =
∑ 𝐹𝑙𝑜𝑤 𝑈𝑛𝑖𝑡𝑠
∑ (𝐹𝑙𝑜𝑤 𝑈𝑛𝑖𝑡𝑠 𝑤ℎ𝑒𝑟𝑒 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒<800)

𝑃𝑒𝑟𝑐𝑒𝑛𝑡 𝑜𝑓 𝐷𝑒𝑚𝑎𝑛𝑑 𝑤𝑖𝑡ℎ𝑖𝑛 800 𝑀𝑖𝑙𝑒𝑠 = ∑ 𝑇𝑜𝑡𝑎𝑙 𝐹𝑙𝑜𝑤 𝑈𝑛𝑖𝑡𝑠
As a note, weighting of averages and percent of demand were both calculated using unit quantity;
however, it could easily be achieved using weight, revenue, cost, profit, etc.
These calculations can be performed in Excel via formulas and PivotTables by exporting the Customer
Flows table.
Weighted Percent of Transportation Inventory Facility Total Cost

Average Demand Cost Holding Cost Fixed
Distance within 800 Operating
Scenario (miles) Miles Cost
Constrained Baseline 306.4 99.75% $ 7,917,074 $ 15,084,123 $ 6,000,000 $ 29,001,197
Optimal Baseline 316.4 99.41% $ 8,143,897 $ 14,551,442 $ 6,000,000 $ 28,695,339
Choose 5 DCs 339.7 96.84% $ 8,581,315 $ 14,302,138 $ 5,000,000 $ 27,883,453
Choose 4 DCs 414.2 88.95% $ 10,355,489 $ 12,715,783 $ 4,000,000 $ 27,071,273
Choose 3 DCs 521.5 81.15% $ 12,862,670 $ 11,792,760 $ 3,000,000 $ 27,655,430
Note the trade-off between inventory holding cost and transportation costs. With fewer locations,
average on hand inventory at each location decreases as throughput through these sites increase. Turns
increase as throughput increases leveraging economies of scale thereby reducing the average on-hand
inventory. Subsequently, inventory holding costs also decrease.
However, with fewer number of locations the in-transit inventory also increases due to longer
transportation lead times. This can be easily observed by creating a view from the Network Inventory
Summary table.
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Views: TurnEstimated vs Intransit Inventory

Configuration
View
You notice that the in-transit inventory for choose 5 DCs scenario is lesser than Optimal and Constrained
Baseline scenarios that have 6 DCs. This is due to trade-off between transportation costs and inventory
holding cost due to in-transit inventory.
Your preliminary analysis should provide management with adequate information to assist them in their
decisions and set a basis for further what-if scenarios.
Further Considerations
Additionally, you can also choose to perform an analysis with service as priority. This can be done using
the sequential optimization functionality in Supply Chain Guru to prioritize total weighted transportation
time for the set of all customers over the total cost objective.
You can replicate your analysis for scenarios Optimal Baseline, Choose 5 DCs, Choose 4 DCs and Choose
3 DCs to prioritize service.
To do so, you would first need to define the sequential optimization objectives.
1. Type Sequential into the filter bar of the left navigation pane and select Sequential Objectives
located under Advanced Constraints. Double-click to open.
38
2. You need to define two sequential objectives. Define the first to apply a priority of 1 over the
collection of all customers for Total Weighted Transportation Time as follows –
Objective = Total Weighted Transportation Time

Priority = 1
Destination = (ALL_Customers)
Status = Exclude
3. Define the second objective to apply a priority of 2 to Total Cost as follows –
Objective = Total Cost

Priority = 2
Status = Exclude
The next step is to create two scenario items. One to include the sequential objectives and the other to
set the optimization objective to sequential.
Scenario Items
To create a new scenario item, select the New Scenario Item button. This will open up a new tab named
Scenario Item.
3. Create the first scenario item –

Name = Include Sequential Objective
Table = Sequential Objectives
Filter =
Field = Status
Operator = “=”
Values = Include
4. Create the second scenario item –

Name = Activate Sequential Optimization
Table = Network Optimization Options
Filter =
Field = Optimization Objectives
Operator = “=”
Values = Sequential
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Scenarios
You can copy an existing scenario you wish to perform service based analysis on and then add the
following two scenario items.
Once the scenarios have been created, simply run the scenarios. You do not need to change run type to
sequential prior to run since this is triggered via the scenario item.
Questions
1. What differences do you notice from the optimization objective with cost as priority?
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Phase II
Model Overview
For Phase II of your project, you are concerned about the seasonality in demand and want to analyze
pre-build inventory in your network since you know demand exceeds capacity during the summer
months. Since you would have to expand the scope by introducing multiple periods, you would first
need to create a copy of the existing model. This way you can leave your original model for any other
analysis that might only be required over the model horizon.
1. Select the < arrow at the top left of the application window next to the name of the model to
navigate to the Projects page on the Home screen.
2. Select the model Inventory_Exercise_1 and select the Duplicate button to create a copy of the
model.
3. Name this Inventory_Exercise_2 and click Save.
You should now see a new model named Inventory_Exercise_2 within the same Project.
4. Double-click to open this model.
Step 1: Generate Multi-Periods

The first step is to create multiple periods in your model. This can be done in one of two ways. You can
choose to auto-generate periods using the Generate Periods tool or manually enter them in the Periods
table. You choose to use the Generate Periods tool since you know that your periods are going to be of
equal length.
Periods
1. Select Periods located under Model Elements on the left navigation pane. Double-click to open.
2. Select the Generate Periods button located on the table toolbar.
You want to analyze pre-build inventory across every month in the model horizon.
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3. In the Generate Periods form fly-out, ensure the Start Date and End Date match the model horizon.
4. Set the option for How long would you like each period to be? to 1 and select Months from the
drop-down.
5. Select the check box for Overwrite existing periods.
6. Click Generate.
The Periods table is displayed, showing the monthly periods that were generated.
Since you have now converted this model into a multi-period model, you need to ensure that the Fixed
Operating Costs are being applied to the horizon and not for every period.
7. Close the Periods table.
Step 2: Update Model Elements and Policies

Sites
1. Select Sites located under Model Elements on the left navigation pane. Double-click to open.
Since the Fixed Operating Costs have only been considered for the DCs in this model, we need to only
filter on the DCs.
2. Select the filter icon next to the Name field to access the filter row.
3. Select the ‘Enter Filter Name here’ drop-down and select the All DCs filter.
4. Scroll to the Capacity/Fixed Cost Period field and update the column values to Horizon.
Setting this field to Horizon ensures that the specified Cost and Capacity structure for the Fixed
Operating Cost, Minimum Capacity and Maximum Capacity fields is applied over the total length of the
optimization.
Since this model is focused on answering questions about pre-build inventory to account for mismatch
between capacity and demand during summer months, you want to remove turn-estimated inventory
from the model.
Hence you need to remove inventory turns information for the DCs from the inventory policies table.
5. Clear the filter.

6. Save and close the Sites table.
Inventory Policies
1. Select Inventory Policies located under Inventory on the left navigation pane. Double-click to open.
2. Delete the values under Inv Turns field for all records.
3. Save and close the Inventory Policies table.
Now that the basic structure of the model is set, we need to review our constraints to ensure that they
make sense for multiple periods.
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Step 3: Review and Update Constraints

Inventory Constraints
Warehouse space is fixed and does not change by periods. However, you now need to ensure that this
constraint is being applied to Pre-build inventory and not turn-estimated inventory.
1. Type Inventory into the filter bar of the left navigation pane and select Inventory Constraints
2. Change the value for Period from (ALL_Periods) (All) to (ALL_Periods) (Each).
3. Set Turn-Estimated Stock to Exclude and Pre-build Stock to Include.
4. Save and close the Inventory Constraints table.
Production Constraints
1. Type Production into the filter bar of the left navigation pane and select Production Constraints
Production Capacities were annualized and set to Horizon.
2. Update the Period field to (ALL_Periods) (Each) for all records.

3. Update the Constraint Value field corresponding to each plant as follows –
Facility Monthly Production

Capacity
Greenbay 4,375,000
Houston 4,000,000
Oakland 2,500,000
4. Save and close the Production Constraints table.
Run Optimization
Launch Pad.
Optimization.
4. Under Select Scenarios, ensure that Constrained Baseline, Optimal Baseline, Choose 5 DCs, Choose
4 DCs and Choose 3 DCs are selected.
You observe that from all the scenarios run, the Choose 3 DCs scenario is infeasible. This is not a
modeling error, but rather a legitimate constraint preventing all demand from being satisfied. Where do
you think the ‘bottleneck’ occurred?
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Review Infeasibility to Identify Constraints

1. Select the Choose 3 DCs scenario under the Scenario Queue from the Launch Pad. This displays
the run log.
2. Select the Run Infeasibility Diagnosis button.
3. Once infeasibility diagnosis completes successfully, select the scenario under the Scenario Queue in
the Launch Pad to access the run log.
Note that there is one Diagnostic Deficit reported.

4. Select the Examine button located below this.
This will open the Constraint Summary table with a filter applied for the diagnostic deficit pertaining
to this scenario.
44
The record corresponds to the Site Count Constraint. The Diagnostic Deficit value of 1 in this field
indicates that one additional DC is required for the model to be feasible given the production and
inventory constraints.
You believe that the inventory constraints on the warehouse space are truly responsible for the model
infeasibility so you decide to further investigate this.
Output Analysis
2. Select the first icon – the Output Tables icon under the Analyze section to access output tables on
the left navigation pane.
You want to understand when and where pre-build inventory is produced and stored.
3. Select the Network Inventory Summary table under Summaries in the left navigation pane. Double-
click to open.
You can use the filters in the report to quickly identify Site names and Period names for each scenario,
but you decide to create a view so that you can review the allocation of volumes.
Views: Prebuild Inventory

Configuration
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View
You can export this report by clicking on the Excel export button on ribbon at the top of the view.
You notice that although the total pre build inventory quantity remains the same across each period for
all scenarios, the distribution of pre-build inventory to the sites across these periods varies. Since the
DCs selected across these different scenarios vary, the allocation of pre-build inventory across the sites
would also be expected to vary by period.
Since Inventory Constraints are on a cubic basis, you need to convert the pre-build inventory to volume
to understand when maximum capacity is reached. This can easily be done in excel. The inventory value
needs to be multiplied by the product cubic which is 0.05.
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You then decide to build a pivot table using this data to view pre build inventory volume for all scenarios
by period.
Notice that for scenario Choose 4 DCs, the maximum capacity is reached for three of the four DCs by
Period_004. Clearly, a network with 3 DCs given the current capacity constraints would not be able to
satisfy demand.
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This initial model setup should provide a platform to management to perform additional sensitivity
analysis on the warehouse space by increasing capacity. You may also choose to introduce some cost for
this increase in capacity and analyze the trade-off between reducing number of facilities and increasing
capacity versus having more locations.
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FOUNDATIONS IN

Foundations in Network Optimization: Inventory

Inventory Modeling - Studying Network Inventory

The time horizon being considered here in one year.

You’ve chalked out a plan to approach this project in two phases.

Let’s quickly explore what you’ll be doing in each phase.

In this model, you want to

1. Build the baseline to replicate historical flows.

Optimization Objective: Minimize total cost

Weighted Percent of Transportation Inventory Facility Fixed Total Cost

Restore Existing Model

Step 1: Review Basic Tables

2. Close the Customers table.

2. Close the Sites table.

Close the Network Map tab.

2. Close the Products table.

3. Close the Customer Orders table.

3. Close the Production Policies table.

Customer Sourcing Policies

3. Close the Customer Sourcing Policies table.

Site Sourcing Policies

3. Close the Site Sourcing Policies table.

3. Close the Transportation Policies table.

Distribution Holding Stocking Cost Loading Cost Throughput levels Inventory

Step 2: Define Constraints

10. Close the Flow Constraints table.

Period = (Filter) (ALL_Periods)

3. Save and close the Inventory Constraints table.

Facility Monthly Production Yearly Production

Period = (Filter) (ALL_Periods)

4. Create the next constraint as follows –

Period = (Filter) (ALL_Periods)

5. Create the final constraint as follows –

Period = (Filter) (ALL_Periods)

Constraint Type = Max

6. Save and close the Production Constraints table.

Scenario 1: Constrained Baseline

Name = Include Baseline Flow Constraints

Name = Include Warehouse Space Constraints

Name = Include Production Constraints

You are now all set to the run this scenario.

Running the scenario

Scenario 2: Optimal Baseline

6. Save the scenario and close the tab.

Running the scenario

Scenario 3: Choose 5 DCs

You first need to define the site constraint.

Period = (Filter) (ALL_Periods)

This constraint will be triggered through scenario items.

5. Close the Site Constraints table.

Name = Change DC Status to Consider

Name = Change DC Site Type to Potential

Values = Potential Site

Name = Include Site Constraint

5. Save the scenario and close the tab.

Running the scenario

Scenario 4: Choose 4 DCs

You will first create the scenario item.

Name = Change Constraint Value to 4

5. Save the Scenario Item and close the tab.

5. Save the scenario and close the tab.

Scenario 5: Choose 3 DCs

You will first create the scenario item.