Arkieva has designed its Multi-Echelon Inventory Optimization (MEIO) module as a comprehensive tool to calculate these safety stock targets. It takes into account demand and lead time variability at each echelon and node and uses a sophisticated algorithm to calculate the targets in a multi-echelon way. It also enables scenarios and allows comparison of these scenarios with each other. This module combines advanced MEI capabilities with the data management, analytics, and reporting engine within the Arkieva Software.
Businesses can use this module to better inventory optimization. In addition, the calculated targets can be used in the Arkieva supply planning module to manage the business to these targets.
MEIO Key Capabilities:
- Calculate inventory targets for all materials and locations across echelons
- Flexible settings for Service Level Definition
- Scenario Capabilities to measure impact of different assumptions/settings
- Evaluate both the distribution network (Bill of distribution (BOD) based) and production network (Bill of Materials (BOM) based)
- Extensive analytics and reporting capabilities
MEIO User Benefits:
- Quickly calculate inventory targets across the network
- Evaluate tradeoffs between different service level strategies
- Tie the results into Supply planner or Replenishment Planner
- Significant savings by way of inventory reductions (typically 30%)
Single-Echelon versus Multi-Echelon System
Managing Inventory effectively across a multiple–echelon supply chain network is a key requirement facing all global companies. While traditional safety stock methods have provided a good mechanism to determine inventory targets for single echelon networks, multi echelon networks require special treatment.
In a single-echelon network, an individual material-location combination is not affected by any other material or location. If a business was selling products from a single location, then it would rightly be categorized as a single-echelon system. All traditional safety stock methodologies assume a single-echelon.
However, most businesses usually operate through a distribution network (Plant/DC/Warehouse) as well as a manufacturing network (via production stages and BOM). The inventory levels at each of these levels have an impact on the required inventory at different levels. For example, a business might keep its inventory entirely at the component (or bulk) level and only make the final product at the very last stage (postponement). Conversely, a business might choose to push the entire inventory to the final distribution point, indicating a strategy that is highly responsive to customer orders (Make to Stock). And of course, there can be various shades in the middle.
The key questions are:
- How much inventory should be kept where?
- Should we practice postponement or risk pooling strategies and risk customer service, or should we load the forward warehouses?
- How to distribute the inventory so the overall investment is minimized without jeopardizing the service level?
When a business begins to ask these questions, they are essentially thinking of a multi-echelon inventory problem. On the other hand, if they treat each node independently to calculate the target inventory, then they are treating a multi-echelon problem in a single-echelon way.