Safety Dance: How Novozymes Made The Right Moves To Reduce Safety Stock Across The Supply Chain
Remember that 80’s song, “Safety Dance” by Men Without Hats?
This song popped into my mind recently. I was attending a webinar on multi-echelon inventory optimization (MEIO) for Novozymes A/S – a global provider of biological solutions.
The idea behind MEIO is to widen the scope on inventory management beyond the single facility and consider the wider supply chain when making decisions about optimizing safety stock decisions. Instead of carrying excess inventory at facility #1 to cover potential shortages, you can lean on your broader supply network to cover your bases with inventory held at facility #2 or #3 – and so on.
This approach can minimize inventory carrying costs and free up working capital. But doing it right requires a bit of a dance. With help from the SAP Integrated Business Planning for Supply Chain (SAP IBP) solution, Novozymes was able to make the right moves.
Before the big dance
In the past, Novozymes faced a set of challenges that are common enough when you manage inventory with spreadsheets. It used a global template with local adaptations, and updating safety stock calculations required constant coordination with local resources.
Ideally, the company wanted to update safety stock calculations every three months – or even more frequently if possible. But at Novozymes, the process was complex and time-consuming. This meant that teams could only manage updates twice a year or so.
The spreadsheet approach also limited visibility. Seeing into actual inventory positions at Novozymes required teams to pass spreadsheets back and forth and compare notes. Poor visibility led to oversights and stockouts that required regular firefighting to ensure on-time delivery and customer satisfaction.
Reducing safety stock by 10%
The goal for inventory managers at Novozymes was to reduce working capital tied up in safety stock by 10%. They also wanted the ability to:
- Aggregate data faster
- Centralize data to improve visibility
- Calculate scenarios on the fly
- Run simulations to optimize decision-making
- Drive end-user adoption with intuitive functionality
These are the kinds of capabilities required to pull off MEIO – and for Novozymes, SAP IBP was up to this task.
Dancing alone vs dancing with the team
SAP IBP comes with a familiar spreadsheet-based interface – which played a big part in moving forward for Novozymes. Users can jump in with a familiarity that speeds the ramp-up process. At the same time, the solution is cloud-based and centralized. This means the company benefits from a single source of truth for planning data.
On the other hand, MEIO requires a change in thinking. Novozymes’ old process had local planners running individual calculations based on data captured in disconnected spreadsheets. Now, the system is set up for planners to control “levers” and then analyze the results based on the inputs of different parameters.
The result is a more human system that allows planners to run quick simulations and choose the best path forward – not for the individual facility where the particular planner may be sitting, but for the Novozymes’ supply network as a whole.
Today, Novozymes can run safety stock evaluations every month. Simulations take minutes rather than hours – even against complex bill-of-materials structures. Improved visibility translates into greater transparency into stock drivers. Now, Novozymes can understand how much of its safety stock is driven by demand uncertainty versus supply variability.
The “change in mind” factor means that today planners may actually commit to lower coverage at their particular plants – but with the consolation, that coverage will come from elsewhere in the network. Ultimately this is what MEIO is all about: more dynamic planning that benefits from the network effect.
The result for Novozymes has been greater overall supply chain efficiency. Originally, planners aimed for a 10% reduction in safety stock but actually achieved 12%. And, most importantly, Novozymes has been able to achieve these results while still delivering to customers as they expect. I’d call that busting a move!