Advanced Planner and Optimizer

Board members:

As a follow up to the memo I sent you this past month I have prepared the following information about the Advanced Planning Optimizer software (APO) for your review prior to my presentation on the upcoming board meeting.

As you know, in the last couple of years, the soft drinks and beer industry from which we derive our revenue has become increasingly globalized. This has intensified the need to reduce our costs and improve customer satisfaction in order to compete and maintain a competitive advantage in a very price sensitive market.

Analyzing our current situation, we can see that our profit margins have been declining in the past three years due to company wide operational inefficiency. Our distribution costs have been increasing because of the high inventories we carry in the warehouses; we are constantly having oversupply or shortages in our raw materials making it difficult to negotiate lower prices with suppliers; and we have been scheduling shorter production runs, thus incurring in high set up costs.

Another serious issue we need to address is the number of customer complaints about the quality of our services. The most common complaints are that delivery trucks do not arrive on time and that we are constantly having stock outs.

Each of these issues described above has affected our profitability and credibility as a company and we need to address them immediately. After looking at several software applications that could guide us through this change process, I think that Advanced Planning Optimizer from SAP is our best choice.

APO helps a company improve demand forecasts, production planning, scheduling, and product shipping. All of which are critical factors to help a company reduce costs while improving customer satisfaction.

Demand forecasts are improved by facilitating the construction of statistical models where seasonal trends and events (i.e promotions) can be included in a per SKU basis. By creating more precise forecasts, we will cut the costs involved in carrying excess inventory in our depot's warehouses as well as in our material safety stocks. It can also allow us to provide a more stable purchasing plan to suppliers that will help leverage our position in our next negotiation and therefore drive the costs down.

Forecast accuracy can also have an impact on the quality of our customer service. Stock outs can not be measured simply by monetary means because it affects our biggest asset which is brand image; if a product is not available, we lose ground to the competition. By increasing our accuracy, stock outs will be diminished and customer satisfaction augmented, making it harder for new competitors to gain market share.

Another function of APO is CTM (Capable to match) which helps Managers match supplies, available production capacity and anticipated demand. This feature will help us identify surpluses or shortages of key materials and alter procurement plans conveniently. It will also make it easier to identify where we will run out of capacity so that we can evaluate alternatives before the crisis and thus avoid stock outs.

The use of the Production Planning/Detailed Scheduling (PP/DS) module in APO intends to optimize the resources available, the line capacities, and the delivery times while minimizing the production costs. This module complimented