How Do You Evaluate Inventory Impacts Before Making Changes?

August 31, 2017

LMI Staff

Wouldn’t it be nice to know the impact of budget cuts before they occurred? Or whether a change in stock policies would decrease or increase wait times for a part? Or what’s the best way to lower procurement workload by 10 percent? LMI’s Financial and Inventory Simulation Model (FINISIM) answers these questions and more.

FINISIM is a discrete event simulation that provides rapid analyses of complex, large-scale inventory and financial systems and the interaction between them. It tracks supply-chain–related financial metrics, such as inventory investment, cash flow, and sales, as well as supply-related metrics such as customer wait time, fill rates, and backorder duration. The tool enables users to quickly evaluate changes in demand, finances, or procurement system settings.

“There are many pieces to an inventory policy. You don’t want to make a change without knowing the long-term or short-term implications of that change,” explained Dr. Pamela Williams, Senior Consultant with LMI. “FINISIM enables you to do a rapid analysis before committing time or money to changing your existing inventory system.”

Analyze Tradeoffs

The simulation tool also enables users to perform tradeoff analyses. “FINISIM helps you visualize the tradeoff between customer service and inventory cost, procurement, and order processing workload,” Williams added. “For example, you can plot on-hand investment versus wait time and see how the two interact for a population of items.”

FINISIM is suitable for large-scale inventories of consumables and repair parts. It can simulate inventories up to 150,000 items, said Williams. To model larger inventories, users can make separate runs and then aggregate the results. The tool can reveal whether investment is spread evenly across items and whether performance is different for expensive items or those with long lead-times.

Several government agencies have used FINISIM, including the Defense Logistics Agency, Navy, Air Force, Marine Corps, Army, and Federal Aviation Administration. In the commercial space, it’s suitable for any industry with a large parts’ inventory to manage, such as airlines, automotive assembly, and electronics manufacturing, said Williams.

A 12-member LMI team has been continually enhancing the model since its development in 1994. The result is a robust tool that incorporates many standard forecasting and inventory control approaches as well as benchmarks to enable rapid comparison of alternative inventory control methods. FINISIM features eight demand generators, more than a dozen stocking policies, 16 forecasting models, five options for setting safety levels, and eight methods for computing order quantity.

Implement Quickly

For clients seeking to implement FINISIM, LMI meets with an organization’s inventory experts to determine whether one of the tool’s existing stocking policies is suitable or whether a new one is needed. If an existing policy is appropriate, FINISIM can be up and running as soon as the input data is available. FINISIM inputs data such as historical demand; item attributes like price, lead-time, on-hand inventory, and scheduled receipts; network structure; and working capital. If a new stocking policy is needed, development, implementation, and validation take longer—up to three months.

Training is also critical to the implementation process. “FINISIM is not something we install at a client site and then disappear,” said Williams. “Clients get the expertise of LMI analysts who help set up the initial runs and train them on using the system.”

Once implemented, LMI runs the baseline, which models the client’s existing supply chain processes. After the baseline is established, clients can begin simulating changes to various components of the procurement process. The model can report 20 different outputs, which can be ordered so that those most important to the client appear first.

Avoid Unnecessary Expenditures: Simulate First

Williams recommends that organizations considering changing their supply chain policies or buying a new procurement system first simulate the impacts of those changes in FINISIM. “You wouldn’t buy a new car without first test driving it. You shouldn’t buy a new component to your planning system without a test drive,” said Williams. “We find that many inventory methods proposed are for demand streams that are inconsistent to what clients experience. We can emulate proposed solutions to see if the inventory improvements offset the cost of implementing the new code.”

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