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Hitachi

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Lumada customer case code: UC-01293S

Reproducing the Entire Supply Chain in Cyberspace to Optimize Product Inventory and Distribution Sites

Making plans that use the Supply Chain Optimization Service to optimize the handling of fluctuations in demand

2022-11-09

Suppliers need to quickly identify fluctuations in demand caused by factors such as the diversification of consumer needs, and need to supply their products appropriately. This article looks at customer cases for optimizing the supply chain while maintaining its overall resilience, even under the apparently conflicting conditions of reviewing excess inventory and optimizing distribution sites based on the reviewed inventory.

Key points of this article

  • Optimal plans can be made using a digital twin of the entire supply chain.
  • Product inventories at stores and warehouses can be optimized to enable instant responses to changes in demand.
  • Optimizing distribution sites can reduce costs.

Digest

This service utilizes data, from procurement to sales, to automatically make highly accurate plans tailored to the customer’s business operations.
A digital twin is constructed in cyberspace, and real-world data is linked to enable estimates and predictions of what is likely to happen in the future. By conducting multiple trials without worrying about the impact on business operations, the customer can make optimal plans for their entire supply chain and provide feedback in the real world.

Co-create with Lumada! Utilizing business operation data to optimize supply chains

Utilizing data to optimize inventory and distribution sites for production tailored to demand

Diversified work styles and values are changing the demand for products. In order to achieve supply that responds to changes, we need to accurately know how much of what product is required when and where. However, it is difficult to manually obtain such data and to manually optimize the entire supply chain.

Optimizing inventory and distribution sites to respond to fluctuations in demand

Demand for products is constantly fluctuating due to factors such as changing consumer needs. Various matters must be considered in order to ensure profitability despite fluctuations of varying sizes. These include, for example, reducing costs by closely tracking product sales to avoid excessive inventory.

One way to effectively reduce costs is to consolidate distribution sites. In order to consolidate sites while meeting adequacy rates relative to demand, we need to accurately track the status of inventory ready for timely shipment and inventory lying unshipped. In addition, we need to consider optimization of the entire supply chain, including reviewing fixed production plans and unexpected shipments.

Optimizing the entire supply chain by utilizing data on the status of incoming and outgoing shipments

Even if you understand what should be done and want to balance supply and demand, manage inventory, and verify shipping costs in an appropriate and timely manner, the following problems arise due to factors such as the vast quantity of items, increasingly multi-layered and complex supply chains, and the conflicting goals of the departments involved:

  • Manually drafting hypotheses and analyzing verification results take time.
  • The appropriateness of a plan is unclear because determining this relies on the experience and intuition of staff.
  • Improvements never go beyond individual optimizations at individual departments.

An effective way to optimize inventory and reduce costs is to visualize the adequacy rates relative to demand. Hitachi’s Supply Chain Optimization Service uses the following features to find measures for optimizing the entire supply chain:

  • Performing, in a timely manner, complex calculations using massive amounts of data.
  • Quickly and accurately verifying whether plans based on calculations are appropriate.

Specifically, this service checks the status of incoming and outgoing shipments based on daily operational data from distribution sites and then calculates the inventory quantity and inventory quantity forecasts. By also analyzing warehouse capacity, this service allows users to consider the optimization of distribution sites to match their appropriate inventory, thus reducing costs.
Having found the appropriate inventory, users can review production and shipping plans to reduce excess inventory and irregular shipments, leading to optimization of the entire supply chain.

Estimating and predicting the future in cyberspace and giving feedback in the real world

Data collected in the real world is utilized to make a digital twin, thereby creating a close copy of the real world in cyberspace. Analyzing the flow of goods or information throughout the supply chain through this technology allows the user to make estimates and predictions of the future of the real world.
Because scenario trials in cyberspace do not impact real-world operations, various scenarios can be created and trialed repeatedly. Evaluations can be made based on target values and the optimal solutions obtained can be provided as feedback in the real world, thus allowing users to consider major revisions of business operations that were previously impossible.

Technical column: Achieving total optimization by using a digital twin that includes SCM operations

To make a highly effective business operation review plan with highly accurate SCM (supply chain management), all the information collected in the real world must be reflected in the digital twin.

The digital twins reproduced with the Supply Chain Optimization Service include not only physical sites such as factories and warehouses, but also the SCM workers (people) who are in charge of procurement, production planning, shipping, and other operations at each site. Since the SCM operations themselves, which are filled with knowledge, are reproduced, complex scenarios can be tried and evaluated on the digital twin, which is a close copy of the real world.

In addition, SCM operations that are performed by experts only at specific sites can be applied to and positioned at all sites in the digital twin, allowing for an ideal operational plan to be made with a perspective encompassing the entire supply chain. This ensures uniformity in the accuracy of operations, improves quality, and eliminates over-reliance on particular individuals.

Appropriate inventory levels to supply what’s needed, when it’s needed, in the amount needed

Using the Supply Chain Optimization Service to automatically make plans that instantly reflect fluctuations in demand

This service collects and utilizes a variety of data generated on a daily basis to automatically make plans that optimize the entire supply chain.

Making optimal plans based on supply chain data

The Supply Chain Optimization Service creates a digital twin of the entire supply chain by linking in cyberspace the data generated on a daily basis from real-world procurement, production, warehouses, shipping, stores, customers, and markets. By trying out scenarios such as different fluctuations in demand or different inventory and production statuses, the service enables estimates and predictions related to the flow of people, goods, and information.
This enables customers to make optimal plans covering all of their business operations while responding immediately to fluctuations in demand. This helps them achieve optimum inventory levels that can supply what’s needed, when it’s needed, in the amount needed.

Making continuous improvements to the supply chain to solve management issues

Departments sometimes have conflicting target values: for example, one department might want to practically eliminate product shortages to prevent the loss of sales opportunities, while another department might want to use appropriate inventory levels to reduce losses due to disposal of excessive product inventory and to reduce storage costs. Even in such a situation, however, this service quickly provides highly accurate plans that contribute to continuous improvement of the supply chain and to solutions for management issues.

  • Automatically making highly accurate plans
    By utilizing the vast quantity of diverse data in the supply chain, this service tries and verifies scenarios such as changes in demand, inventory statuses, and distribution site positioning to estimate and predict not only what is happening now, but also changes that will occur in the future. This enables users to make highly accurate and optimal plans for the entire business that can be adapted even for the operations of global companies.
  • Planning that adapts to company characteristics and operations
    Time spent on implementation and planning can be reduced by utilizing Hitachi’s advanced digital technology and the knowledge Hitachi has accumulated from improving our own supply chains. By taking into account the characteristics and unique operations of each company, this service provides plans that can be applied directly in the real world.
  • Immediately responding to changes and pursuing continuous improvement
    Users can carry out a PDCA cycle that responds immediately to daily changes by incorporating real-world data in a timely manner. Performing rapid trial and verification allows users to apply an optimal plan that immediately responds to daily changes in the real world and supports continuous improvements in the supply chain.

Example of applying the solution

This section describes an example of a clothing and accessory retail company that investigated implementing the Supply Chain Optimization Service. The verification investigation confirmed that the service reduced inventory and site management costs.

The market for clothing and accessories is shrinking due to factors such as a declining workforce caused by the falling birthrate and aging population. This major retail company had excessive inventory caused mainly by intuition-based ordering. Because the company realized they needed to review this situation, they used a year’s worth of data on incoming and outgoing products, inventory, and warehouse capacity to automatically calculate an optimal supply plan using the Supply Chain Optimization Service. This verification confirmed the following benefits:

  • A 40% reduction (approximately) in product inventory
  • A 50% reduction (approximately) in inventory storage costs

In addition, the verification process confirmed that optimizing inventory would allow the retailer to reduce their distribution sites by one and cut their site management costs by over 10%.

Future prospects for the Supply Chain Optimization Service

The Supply Chain Optimization Service is applicable to all industries and business operations that have inventories of raw materials, products, etc. From the perspective of total optimization across departments, this service eliminates fruitless efforts that occur in each department and uses a consistent approach to achieve productivity improvements and cost reductions.

In addition to changes in consumer behavior due to diversifying lifestyles, there are also factors such as infectious disease pandemics, sharp exchange rate fluctuations, and tense international situations, which are having an increasingly apparent impact on supply chain operations.
Moving forward, Hitachi will improve the functionality as well as expand the options for our Supply Chain Optimization Service in order to help a wide range of customers optimize and maintain the resilience of their entire supply chains. In addition to solving our customers’ management issues, we will also contribute to achieving SDGs by reducing losses due to disposal of excessive product inventory and thereby reducing the burden on the environment.

For details on our solutions, see the following webpages.

Supply Chain Optimization Service
This service quickly provides highly accurate plans that cannot be formulated manually, contributing to continuous supply chain improvement and solutions for management issues. This solution is provided in Japan.
Frontier of Digital Transformation
TWX-21
For more than 20 years, this cloud service has provided a space for business-to-business transactions over the internet for approximately 84,000 corporate customers. This service utilizes our extensive experience and implementation track record to support supply chain reform in the digital age. This solution is provided in Japan.

Summary

Utilizing data to optimize inventory and distribution sites for production tailored to demand
Analyzing the flow of people, goods, and information in a supply chain reproduced in cyberspace allows users to estimate and predict the future without impacting business operations in the real world. The entire supply chain can be optimized by trying various scenarios created to review operations, and then providing the obtained optimal solutions as feedback in the real world.
Using the Supply Chain Optimization Service to automatically make plans that instantly reflect fluctuations
Data generated on a daily basis in real-world supply chains is linked together in cyberspace to create a digital twin. By trying operation scenarios to estimate and predict the flow of people, goods, and information, customers can make optimal plans covering all of their business operations while responding immediately to fluctuations in demand. This helps them achieve inventory that can supply what’s needed, when it’s needed, in the amount needed.
Do you have a large amount of data that is not being effectively utilized in your business?
Do you have operations in your business that generate new data on a daily basis, such as the supply chain?
You can unlock the true potential of your data and create new value through data collection and analysis.

Key points of this article

  • Optimal plans can be made using a digital twin of the entire supply chain.
  • Product inventories at stores and warehouses can be optimized to enable instant responses to changes in demand.
  • Optimizing distribution sites can reduce costs.

Digest

This service utilizes data, from procurement to sales, to automatically make highly accurate plans tailored to the customer’s business operations.
A digital twin is constructed in cyberspace, and real-world data is linked to enable estimates and predictions of what is likely to happen in the future. By conducting multiple trials without worrying about the impact on business operations, the customer can make optimal plans for their entire supply chain and provide feedback in the real world.

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The service (or solution) specifications are subject to change without prior notice due to reasons such as continual improvements.