The Institute for Operations Research and the Management Sciences (INFORMS®), the leading professional association in advanced analytics, has inducted LMI into the Franz Edelman Academy, in recognition of the not-for-profit’s shortlist effort for the 2015 INFORMS Franz Edelman Award. INFORMS is the latest organization to honor LMI for its acclaimed solution for controlling inventory with infrequent or frequent, high variable demand: PNG.
“LMI is honored to become part of the Franz Edelman Academy, as it represents a true validation of our team’s efforts to help the federal government operate in an efficient, practical way, while leveraging a great partnership between the government and industry to develop an innovative means for meeting these challenges,” said Jeff Bennett, LMI’s Senior Vice President of Logistics Management.
Franz Edelman Academy members perform an immeasurable service to the profession by serving as role models for other organizations who wish to also exemplify that challenges can be faced successfully and opportunities for improvement can be found in every organization through the innovative application of analytics. In addition to LMI’s induction, three LMI thought leaders—Tovey Bachman, Pamela Williams, and Kristen Chemen—were named Edelman Laureates.
LMI and the Defense Logistics Agency (DLA) formed one of the six Edelman Award finalist teams, with a submission titled, “Peak and Next Gen: Effective Inventory Control for Items with Infrequent or Frequent, Highly Variable Demand.” PNG is one way DLA is achieving the savings it committed to in its ongoing efforts to improve warfighter support and improve efficiency.
LMI originally developed its inventory control solution, Peak and NextGen (today, collectively known as “PNG”), to help DLA manage logistics items that weren’t needed frequently—those with isolated spikes in demand—as well as items with high variability within their demand histories. Such items account for the majority of hardware stocked by DLA. Initial research confirmed that forecasting methods for items with infrequent or highly variable demand—no matter how sophisticated the forecasting model—were having less than optimal business outcomes for DLA and its customers in the Armed Services and government agencies. The hardware supply chains were either stocking too many items (an overinvestment of resources) or not enough (an inability to fulfill customer orders). LMI’s goal in developing PNG was to help DLA find an approach that would significantly improve business outcomes.
By any standard, DLA—with $38 billion in annual sales, 131,000 customer orders per day, and more than five million stock numbers—is a large business. But DLA’s business model, unlike the private sector, must be able to respond to the unpredictable requirements of combat deployments and training by the military services all around the world.
PNG changed the way DLA approached inventory management for many items by shifting from forecasting to a strategy that focuses more on risk management. The PNG model generates curves that offer a simultaneous three-way tradeoff between customer service, inventory value, and procurement workload.
DLA implemented PNG in January 2013, and the agency is achieving its goals for better customer service and reduced buyer workload with no increase in inventory. Using the PNG tradeoff curves as a reference, DLA can now make a single, integrated stock investment decision that aligns with overall business objectives.
Just two years after implementation, PNG has made considerable progress toward those goals, and the benefits are clearly evident. Material availability increased, which greatly affects weapon system and warfighter readiness. PNG also helped DLA reduce the number of procurement requests by 35 percent (which resulted in an estimated $18 million in labor savings) and lowered the number of procurement cancellations by a remarkable 70 percent (which saves $7.5 million in taxpayer money). More impressive is the better use of working capital: PNG narrowed the gap between what DLA spends on inventory and what it sells by $391 million in 2014 alone. Looking ahead five years, the $7 million cost to develop PNG could yield continued significant reductions, all from buying more of what sells and less of what doesn’t.
Following the PNG successes at DLA, the Office of the Secretary of Defense (OSD) initiated an inventory improvement plan, including a policy to stop forecasting infrequent and highly variable demand items. OSD is also funding a pilot study to apply PNG to unforecastable reparable items at the Army and Air Force. PNG has applications in other related industries, such as automotive and commercial aircraft, high tech and electronics, and service and aftermarket parts suppliers.
- Joining LMI as finalists were
- IBM for “Predictive Cloud Computing with Big Data: Professional Golf and Tennis Forecasting,”
- Ingram Micro for “End-to-End Business Analytics and Optimization in Ingram Micro’s Two-Tier Distribution Business,”
- Syngenta for “Good Growth through Advanced Analytics,”
- Saudi Arabia Ministry of Municipal and Rural Affairs for “A Decision Support System for Hajj Crowd Management,” and
- U.S. Army and Sandia National Laboratories for “Maximizing the Army’s Future Contribution to Global Security Using the Capability Portfolio Analysis Tool (CPAT).”
Additional information about the INFORMS Franz Edelman Award and Competition can be found online at https://www.informs.org/About-INFORMS/News-Room/Press-Releases/2015-Edelman-Finalists.
INFORMS is the leading international association for professionals in analytics and operations research (O.R.). INFORMS advances research, and develops and promotes best practices in analytics and O.R. through collaboration, knowledge sharing, and professional development. INFORMS helps business, government, and other organization professionals make better decisions to drive value to their organizations and society. Its certification program (CAP®), highly cited publications, educational meetings and conferences, continuing education, industry and process-focused networking communities, competitions, and recognition provide professionals with the knowledge and connections they need to achieve ever greater value for their organizations. Further information about INFORMS, analytics, and operations research is at www.informs.org or @informs.