Cross-Product Integration

This chapter details the integration between Oracle Inventory Optimization and Oracle Demand Planning.

This chapter covers the following topics:

• Integration with Demand Planning

Integration with Demand Planning

Oracle Inventory Optimization requires inputs such as demand forecast and demand variability from Oracle Demand Planning. This chapter also briefs how the inventory planning engine spreads forecast that it receives from Oracle Demand Planning.

Uncertainty in demand influences inventory optimization decisions. For example, you may increase the level of your safety stock to satisfy demand spikes during a specific time period. You may want to consider the distribution of demand over a time period or an order replenishment lead-time to drive safety stock calculations.

Oracle Inventory Optimization uses the following inputs from Oracle Demand Planning to plan optimal levels of inventory:

• Demand forecast

• Demand variability

Forecast Accuracy Measures

An estimate of demand variability indicates the forecast accuracy, also referred to as the forecast error. Oracle Demand Planning calculates the following to estimate the standard deviation of forecast error:

• Mean absolute deviation

• Mean absolute percentage error

Based on the demand variability information from Oracle Demand Planning, Oracle Inventory Optimization estimates the safety stock required to avoid stock out. Oracle Advanced Supply Chain Planning uses the demand variability information to suggest the optimal quantity that you need to order and the time when you need to place the order. For more information on mean absolute deviation and mean absolute percentage error, see The Organizations Tabbed Region.

Business Process Flow

The following illustration represents flow of information between Oracle Demand Planning and Oracle Inventory Optimization.

Business Process Flow

You need to perform steps 1 through 5 using Oracle Demand Planning. Perform steps 6 and 7 using Oracle Inventory Optimization. The following steps summarize the business process flow depicted in the illustration:

• Step 1: In Oracle Demand Planning, you can use the Demand Planning System Administrator responsibility to specify an output accuracy measure (mean absolute deviation or mean absolute percentage error) for each scenario. In addition, you can specify the output levels for each scenario based on your inventory planning requirements.

• Step 2: You can use the Demand Planning System Administrator responsibility, the Demand Planning Manager responsibility, or the Demand Planners responsibility to select an accuracy measure (mean absolute deviation or mean absolute percentage error) that is associated to statistical forecast. Oracle Demand Planning calculates the specified accuracy measure when it generates statistical forecast.

• Step 3: You can select a forecast and the levels at which Oracle Demand Planning needs to calculate the forecast accuracy measure. You can also select a comparison measure to calculate the forecast accuracy measure.

• Step 4: You can view the properties of accuracy methods and scenarios. Oracle Demand Planning compares the demand forecast with historical data to calculate forecast accuracy. However, as the demand forecast is futuristic, it is unlikely to have any common time period to compare against with the historic data. Therefore, you can modify the forecast accuracy measures in Oracle Demand Planning.

• Step 5: Using the Demand Planning Manager and Demand Planner responsibilities, you can submit the forecast accuracy measure and the forecast for each scenario at specific output levels. When you submit the forecast accuracy measure, the Oracle Demand Planning Express pushes the information to Oracle Demand Planning Server. Oracle Demand Planning Server shares this information with Oracle Inventory Optimization. The forecast accuracy measure is identified by a scenario name, a forecast name, and a measure type (mean absolute deviation or mean absolute percentage error). Oracle Inventory Optimization requires forecast accuracy measures at the following levels:

  • Item or product in the Product dimension

  • Organization in the Ship From Location dimension

  • Day, week, or manufacturing in the Time dimension

  • Highest level such as All Geography and All Sales Channel for all other dimensions

• Step 6: In Oracle Inventory Optimization, you can use the Inventory Planners responsibility to select forecasts and demand variability for planning inventory. You can select the demand variability as a plan option in Oracle Inventory Planning. Alternatively, if you want to run simulations of an inventory plan using different percentage demand variability values for different scenario sets, you can specify a default demand variability percentage at the scenario set level. The following are characteristics of a scenario set:

  • You can deploy only one type of demand variability (accuracy metric from Oracle Demand Planning, user-defined probability, or user-defined mean absolute % error) in a scenario set.

  • The list of values for the type of demand variability depends on the forecast you select. For example, Accuracy Metric appears as a type of demand variability only when you select a scenario from Oracle Demand Planning.

  • Oracle Inventory Optimization uses the forecast accuracy information that Oracle Demand Planning provides to calculate the safety stock.

  • If you select a specific type of demand variability for a scenario set, the scenario sets having the same scenario set number acquire the type of demand variability. For example, if you select Accuracy Metric as the type of demand variability for a scenario set, it applies to all scenario sets that have the same scenario set number. In addition, the Mean % Error and Probability fields for the scenario sets become disabled.

• Step 7: You can launch the inventory plan in Oracle Inventory Optimization to determine the standard deviation and the safety stock.

Forecast Spreading

If Oracle Inventory Optimization receives a period level forecast from Oracle Demand Planning, the inventory planning engine spreads the forecast to weekly forecasts of equal sizes. Oracle Inventory Optimization spreads forecasts to prevent safety stock spikes.