Setting Safety-Stock Targets at Intel in the Presence of Forecast Bias

Abstract

Inventory target setting within Intel's embedded devices group historically consisted of management-determined inventory targets that were uniformly applied across product families. Achieving and maintaining these inventory targets at the individual product level proved to be a difficult task. To better align inventory resources and improve customer-service levels, Intel employed a multiechelon inventory optimization (MEIO) model to set inventory targets. However, the company could not implement the model's initial recommendations because of the presence of bias in the sales forecast data. Managing the forecast bias by directly modifying the raw sales forecast data was not an option because Sales and Marketing controlled and loaded the data into the manufacturing resource planning (MRP) system before the planning organization received it. Therefore, the average forecast demand, with its bias present, was already in the system; the only adjustment that the planning organization could make was to change the inventory target. This paper describes the inventory optimization problem in Intel's embedded devices group and the adjustment procedure that we developed to produce appropriate inventory targets in the presence of forecast bias.