2015 Edelman Finalist PNG

PNG: Effective Inventory Control for Items with Highly Variable Demand

LMI developed the PNG inventory control solution to manage items with infrequent demand (isolated spikes in demand) as well as items with frequent, but highly variable demand. Such items account for the majority of stocked hardware at the Defense Logistics Agency (DLA). Forecasting demands for these items—no matter how sophisticated the forecasting method—had led to years of bad outcomes for DLA: excess inventory for some items, backorders for others, and excessive buyer workload. The implementation of PNG (a software package of two inventory solutions, Peak Policy and Next Gen) shifted DLA from trying to forecast individual items to a portfolio or risk management approach to inventory control. PNG presents a three-way tradeoff between customer service, inventory value, and replenishment workload. DLA can then make a single decision that aligns with its objectives—without separate investments in forecasted demands, safety stock, or order quantities. Since DLA implemented PNG in January 2013, the agency has achieved its inventory-related goals for better customer service and reduced buyer workload, with no increase in inventory and recurring savings of nearly $400 million per year—all from buying more of what sells and less of what doesn’t.