This chapter presents some of the analytical models and tools that we have developed to support IBM business units in their effort to manage inventory and improve value chain operations. In IBM’s businesses, inventory-driven costs, which include price protection, financing, inventory write-downs (price erosion), and inventory write-offs (obsolescence) are tremendous cost drivers outweighing all others in terms of impact on business performance. The complexity of the end-to-end value chain makes it a serious challenge to determine where to hold safety stock to minimize inventory
costs, and provide a committed level of service to the final customer. We describe the successful development and applications of analytical models for finding the optimal placement of safety stocks in multi-echelon value chains that are subject to forecast, lead time, and attach-rate uncertainty. We focus on three types of value chain architecture: the complex configured hardware value chains, the configure-to-order value chains, and the semiconductor value chains.
By: Markus Ettl, Feng Cheng, Grace Y. Lin, David D. Yao
Published in: RC22762 in 2003
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