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Re: Difference between Optimizer and Profit Optimization

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Hi Joseph

 

Below may not answer your question completely -

 

Cost Minimization works to determine the most cost-effective solution based on the costs defined in the model(on in another words it tries to minimize the total costs of the supply plan). If Penalty costs for non-delivery is considered as non-profit. idea is to maximize the gorss profit - to find out optimal and feasible - production, procurement and distribution plan.  Please refer configuration for SCM Operator/ OPTIMIZE -  "Use Penalty Cost"  and "Minimize Non-Delivery Cost" settings defines the optimization mode in IBP.

 

This is from APO on Profit Maximization (but it may help get some clue) -  {  The total profit achieved by a plan is calculated according to the following formula: Total of all delivered location products, multiplied by the penalty costs for non-delivery that have been defined for these location products, minus all the costs defined in the optimizer cost profile (such as production costs, storage costs and transportation costs). }

 

In IBP we do have keyfigures which has similar naming (as given above from APO) to maintain various costs. Example - Price or Non Delivery Rate, Production Cost, Transportation Cost, External Procurement Cost, Inventory Holding Cost, Safety Stock Violation Cost, these all can be maintained as Fixed or Per Unit Rate.

 

Just my two cents on this topic

 

Hope this will help.

 

Thank you

Satish Waghmare


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