Inventory Optimization and Multi-Echelon Planning Software

Inventory Optimization and Multi-Echelon Planning Software

Screenshots and examples from MCA Solutions/Servigistics, ToolsGroup, Logility and SmartOps.

What the Book is About

This books explains the emerging technology of inventory optimization and multi-echelon (MEIO) supply planning. It takes a complex subject and effectively communicates what MEIO is about in plain English terms. This is the only book currently available that describes MEIO for practitioners, rather for mathematicians or academics.

The book describes with text and graphics how inventory optimization allows the entire supply plan to be controlled with service levels, and how multi echelon technology answers the question of where to locate inventory in the supply network. This is the only book on inventory optimization and multi echelon planning which compares how different best of breed vendors apply MEIO technology to their products. It also explains why this technology is so important for supply planning and why companies should be actively investigating this method. The book moves smoothly between concepts to screen shots and descriptions of how the screens are configured and used. This provides the reader with some of the most intriguing areas of functionality within a variety of applications.

Areas of Focus

  • Detailed explanations of the twin technologies of inventory optimization and multi echelon planning.
  • The importance of having optimization customized for a supply chain domain.
  • The concept of effective lead time and why it is so important to understanding multi echelon planning.
  • How inventory optimization compares to cost optimization.
  • How MEIO’s assumptions are different from all other supply planning method and what this means for its capabilities.
  • MEIO and simulation.
  • How MEIO processes the supply network.
  • How MEIO can be used to strongly tie sales to operations in the estimation of pricing for new business.
  • The pros and cons of setting service level at different areas in the application.

A Book Based in Reality

The book provides many examples from real life project experiences, the emphasis being on the reality of MEIO projects.

Interconnected to Web Information

In order the keep the book at a manageable and easily readable length, the book also provides numerous links out to the SCM Focus site, where supporting articles allow readers to get into more detail on topics that interest them.


  • Chapter 1: Introduction
  • Chapter 2: Where Inventory Optimization and Multi-echelon Planning Fit into the Supply Chain Planning Footprint
  • Chapter 3: Inventory Optimization Explained
  • Chapter 4: Multi-echelon Planning Explained
  • Chapter 5: How Inventory Optimization and Multi-echelon Work Together to Optimize the Supply Plan
  • Chapter 6: MEIO versus Cost Optimization
  • Chapter 7: MEIO and Simulation
  • Chapter 8: MEIO and Service Level Agreements
  • Chapter 9: How MEIO Is Different from APS and MRP/DRP
  • Chapter 10: Conclusion

Chapter 1: Introduction

  • Background and Motivation
  • The Necessity of Good Information to Support Good Decisions
  • The Importance of Software Screenshots and Vendor Diversity
  • How Writing Bias is controlled at SCM Focus an SCM Focus Press
  • Why Are There So Few Books on MEIO?
  • The SCM Focus Site
  • Who Is This Book For?
  • Abbreviations

Chapter 2: Where Inventory Optimization and Multi-echelon Planning Fit within the Supply Chain Planning Footprint

  • Introduction
  • What MEIO Applications Cover
  • Understanding the Use of the Forecast with MEIO
  • Optimization Customization
  • Why Learn about MEIO?
  • What Companies Stand to Gain the Most From MEIO?
  • What is the State of MEIO Applications?
  • The MEIO Data Flow
  • Conclusion

Chapter 3: Inventory Optimization Explained

  • Background
  • Definition of Inventory Optimization
  • General Optimizers Solvers versus Enterprise Optimization Solutions
  • Examples of General Optimization Solvers
  • Dynamic Safety Stock
  • What It Means When One Says That “Safety Stock is Optimized”
  • Safety Stock and Facility Capacity
  • Understanding the General Relationship between Service Level and Inventory
  • Control Over Service Levels
  • Safety Stock or Target Stocking Level Optimization?
  • Segmentation or Inventory Optimization?
  • Viewing Segmentation Software as Distinct from MEIO Software
  • Conclusion

Chapter 4: Multi-echelon Planning Explained

  • Background
  • The Questions that Each Term Answers
  • Multi-echelon Planning Defined
  • A Multi-echelon Network Explained
  • Example of a Multi-echelon Network
  • MEIO’s Value Adds to the Planning Process
  • Taking Dr. Lee’s Multi-echelon Test
  • Understanding Effective Lead-time
  • The Problems in Automotive Service Supply Chains
  • A Better Design
  • Where Is the Service Level Being Set?
  • Setting Service Levels at the Location
  • Pros
  • Cons
  • Setting Service Levels at the Product-Location Combination
  • Pros
  • Cons
  • Setting Service Levels at the Group Location
  • Pros
  • Cons
  • Setting Service Levels at the Customer
  • Pros
  • Cons
  • Setting Service Levels at a Product Mix
  • Pros
  • Cons
  • Setting Service Levels at the Contract
  • Pros
  • Cons
  • The Mistaken Assumption about Service Levels at the Location
  • Considering Who Is the Ultimate Consumer of Service Level
  • Making Service Level Changes
  • The Issue of a Strong versus a Weak Linkage Between Service Levels and Inventory Levels
  • Target Days of Supply
  • Supply Chain Precision as a Discussion Point
  • Conclusion

Chapter 5: How Inventory Optimization and Multi-echelon Work Together to Optimize the Supply Plan

  • What Questions Are Being Answered with MEIO?
  • How MEIO Actually Works
  • Supply Network Observations
  • Effective Lead Time Observations
  • Understanding the Sample Model
  • Differing Calculation Details
  • Aspects of the Sample Model Reflected in the Eventual Stocking Positions
  • Redeployment
  • Planned Procurement or Production Orders?
  • Peeking Below the Hood of MEIO
  • Transaction Recommendation Generating Applications vs. Master Data Update MEIO Applications
  • Ranking the Recommendations Based on Impact
  • Insight into the Ranking
  • Getting Alerts Right
  • Exception-based Management Planning
  • Conclusion

Chapter 6: MEIO versus Cost Optimization

  • How Inventory Optimization Differs from Cost Optimization
  • Cost Optimization versus MEIO in Implementation
  • The Importance of Understanding Cost Optimization
  • What is Cost Optimization?
  • How Cost Optimization Works
  • The Understanding and General Availability of Supply Chain Costs
  • The Common Problems of Cost Optimization
  • Constraint-based Planning
  • Multi Sourcing in Cost Optimization versus MEIO
  • Will the Same Thing that Happened to Cost Optimization Happen to MEIO?
  • Cost Minimization, Service Level Control and Common Supply Planning Objectives
  • Service Level Setting and the Service Level Hierarchy
  • Conclusion

Chapter 7: MEIO and Simulation

  • What is Simulation?
  • The Heart of Supply Chain Simulation
  • Why MEIO Applications Are Generally Good at Simulation
  • How Supply Planning Applications Are Enabled for Simulation from a Data Perspective
  • Combining Segments of Different Schemas
  • The Importance of Precision of Control in Simulation
  • The Ability to Simulate New Business and S&OP
  • Interface Aspects that Support Simulation
  • Service Level and Inventory Investment Settings
  • Accuracy of Simulation Provided by MEIO Applications
  • Initial versus Post Go Live Simulation
  • Strategic versus Online Simulations
  • Conclusion

Chapter 8: MEIO and Service Level Agreements

  • Background
  • The History of SLAs
  • Standard Limitations in Supply Network Control
  • SLAs and MEIO
  • Service Level Agreement Configuration
  • Reducing Friction between the Sales Organization and Supply Chain
  • MEIO for SLA Pricing
  • How the Shared Sales/Supply Chain MEIO Instance Works
  • Providing a Menu of Options to Customers
  • Conclusion

Chapter 9: How MEIO is Different from APS and MRP/DRP

  1. Background
  2. Different Assumptions
  3. The Location Independent Assumption
  4. The Sequential Processing of the Supply Network
  5. Decomposition in Cost Optimization
  6. Decomposition Example: Product: ABC
  7. How MEIO Differs in Terms of Sequential Processing
  8. How MEIO Compares Graphically to the Other Supply Planning Methods
  9. Elaboration on Solution Sophistication Versus Difficulty of Implementation
  10. How MEIO Compares to the Other Supply Planning Methods With Respect to Long Term Maintenance
  11. System Maintenance
  12. Operational Maintenance
  13. Conclusion

Chapter 10: Conclusion

  • Objective
  • Cost and Benefits Estimation of MEIO
  • Assumptions
  • The Forces Resisting MEIO
  • The Opportunity

Questions about the Book? 

Do you have any questions about the book? If so please comment below, and we will address your questions.

  • Fook Cheon Khaw says:

    In July this year, I am going to teach a special topic on MEIO at SIM University (UNISIM) in Singapore. I think your book will be appropriate for this course. When will your book be available for a review?

    I would like to know if your book covers the mathematical algorithms (such as non-linear programming) which are commonly used in inventory optimization. I have some experience in using linear programming for supply chain planning but it will be useful if the relevant mathematics as used in commercial software for MEIO are covered as well.

    Thank you for your info.

    Dr. Khaw Fook Cheon
    SIM University

    • Shaun Snapp says:

      Dr. Khaw Fook Cheon,

      Thanks for your inquiry.

      There are several aspects of the final stages of book publication that I am not in control of that prevent me from saying when exactly a review copy would be available. I can tell you that as of Friday, April 27 2012, the book has been typeset, and I am reviewing it, following up some missing screenshots, doing a final review for typos, etc.. So, I am getting very close to being finished.

      However, the book is not focused on the mathematics of MEIO. Instead it is a book for software implementers, and for people that use MEIO software in their work and people that manage MEIO implementations (consultants and planners) and manage live MEIO systems (project managers, Directors of Supply Chain). The table of contents is listed at the MEIO book page, which I assume you have read, so it tells you very specifically what is in the book. MEIO mathematics are, as you probably know, the most complex in supply planning and the mathematics that is used by MEIO vendors to run their applications requires a strong background in optimization in order to be able to actually recreate. However, my book focuses on explaining MEIO from a conceptual level. Unless you students plan to work in the development organizations of MEIO software vendors, which very few probably will, in my opinion, its really the concepts behind the software they need to understand. If they work in supply planning in the future, they should for instance understand what mathematical assumptions are different in MEIO than cost optimization, or MRP. They also should understand the history of different supply planning methods, etc.. My book covers all of that. As for the math, it can be found in research papers that I reference, and in books by Craig C Sherbrooke. However, each vendor uses a different “flavor” of mathematics from what is generally published of course, and there are some important distinctions between vendors that can only be understood conceptually and in the system output as they don’t publish their specific alterations to the public research.

      So, if you can provide you address to me at [email protected], I can send you a review copy, and gain your feedback as to whether it would fit in the curriculum you are developing. If you think it would be a good fit, then we can discuss further.



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