What does the optimization model do?
S&OP Navigator uses an optimization model to get the best solution, instead of using a set of if-then rules.
In an optimization model, you have a set of decision variables (possibilities the model can compare in multiple combinations) and set of constraints (rules the model must follow). The optimizer finds the value for every variable that provides the best objective (the answer you are looking for) that satisfies the set of constraints. This form of optimization is useful in solving highly complex problems.
The outcome of the model is controlled by the constraints and objective you define.
In any model, there are constraints.
hard constraints that must be held, such as a limitation of inventory based on physical space available.
soft constraints can be relaxed in some cases, such as an arbitrary resource limit based on expected demand. An example of a soft constraint is if there is too much demand, the resource limit might be violated. This means that the model will report a utilization of more than 98%. When there are multiple soft constraints, you must indicate the order of priority.
On the top left of the page, there are some options to toggle whether to enforce certain hard constraint, or relax it.
Some options may not be available for certain versions.
Enforce Capacity. With the option off (default), production can go above the utilization limit (capacity). With this option on, only production utilization on or below 100% are allowed.
x Resource. With the option off (default), a certain product can only be produced from a certain facility. This relation is specified in Excel input data. With the option on, all products can be produced from all facilities. A product can be allocated to produce from a facility which has spare capacity, but such connection is not available from Excel input data.
Include Hard Constraint. For Utilization Limit and Max/Min Inventory constraints, by default they are soft constraints. It is possible to enforce hard constraint limits. To do this, first switch this option to on. Then, in the Capacit Data and Other Input Table, rows corresponding to the hard limits will show, they should already have initial value from the Excel input file. Fill in or modify the numbers so that they are non-zero. If the a value of a month is zero, the model ignores the hard limit for this month.
When you have enough capacity to meet all these constraints, you have the best possible solution. When you don’t have enough capacity, some of these constraints must be violated.
The model has the following priority of the constraints. The constraint with the lowest priority (Priority 5) will be violated first, while constraints with the highest priority (Priority 1) will be violated last.
Priority 5) Above Inventory Target Constraint. Behavior: If needed, the model will build up inventory above the target to meet future demand.
Priority 4) Below Inventory Target Constraint. Behavior: If needed, the model will draw down below the target level to meet current demand, and will try to bring inventory back to target level in future periods.
Priority 3) Inventory Maximum. Behavior: If needed, the model will build up inventory above the maximum level to meet future demand.
Priority 2) Inventory Minimum. Behavior: If needed, the model will draw down inventory below the minimum level to meet current demand and will try to bring it back up in future periods.
Priority 1) Resource Capacity Constraint (Setting 1, Setting 2 and Setting 3). Behavior: If needed, the model will use more capacity than it has available.
In general, violations of Priority 4 and 5 constraints don’t require much attention, as you are still within your inventory and capacity limits. Violations of Priority 1, 2, and 3 constraints require attention, as you are operating outside the specified limits and run risk of stock out. Cells are marked clearly in the application in this case.
When a solve is not feasible
A dialog indicates this solve can’t get an optimal solution. Click OK to go back to the page and check the following:
Uncheck Include Hard Constraint, or relax the ranges of hard limits.
Check if there is enough initial inventory. Look in the first column of the table Production Plan. The row Ending Inventory Level is the inventory level of that month. The first month can be edited to provide the up-to-date initial inventory.
There may not be enough initial inventory, and the second month’s capacity is not enough.