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368 Part Three Key System Applications for the Digital Age

its SAP advanced planning and optimization (APO) system. Nvidia built a
customized interface on top of its APO system for its new inventory forecasting
solution using SAP BusinessObjects Web Intelligence. SAP BusinessObjects Web
Intelligence is a tool for analyzing business data and creating ad hoc reports,
with access to company data via an easy-to-use Web-based interface.
Another part of the solution was to use SAP BusinessObjects Dashboards
to create state-of-the-art supply and demand dashboards where executives
could easily access high-level inventory data. Using these dashboards, Nvidia
executives are able to drill down into details at the product level and to perform
forward- and backward-looking calculations, with or without inventory reserves.
The information is presented in user-friendly charts and tables.
These solutions allow Nvidia to forecast inventory levels for the next four
quarters based on anticipated demand, as well as to view six months’ worth
of current inventory. The error rate has been reduced to 3 percent or less
compared to a 5 percent error rate in the company’s old spreadsheet-based
forecasts. With a $500 million tied up in inventory, the company saves $25
million by being able to reduce its forecasting errors.
Not only has the new system improved accuracy, the dashboards have also
helped to reduce the amount of time required for Nvidia executives and plan-
ners to build and approve a forecast. The old manual system required 140 hours
to prepare a quarterly forecast; the new system has reduced that to only 30
hours. Best of all, all of Nvidia's inventory data are located centrally and are
accessible to all of the company's different business divisions. Nvidia now has
a consistent method of forecasting, instead of multiple models, and managers
clearly are able to make better decisions.
Sources: David Hannon, “Inventory Forecasting at Nvidia,” SAP InsiderPROFILES, April–June
2012; www.nvidia.com, accessed July 20, 2012; andwww.mysap.com, accessed July 20, 2012.
vidia’s problems with inventory forecasting illustrate the critical role
Nof supply chain management systems in business. Nvidia’s business
performance was impeded because it could not balance supply and demand for
its products. Costs were unnecessarily high because the company was unable
to accurately determine the exact amount of each of its chips needed to fulfill
orders and hold just that amount in inventory. Production plans were based on
“best guesses.” Sometimes this left the company holding too much inventory it
couldn’t sell or not enough to fulfill customer orders.
The chapter-opening diagram calls attention to important points raised by this
case and this chapter. Nvidia supplies the consumer electronics industry, where
customer tastes change rapidly and demand is very volatile. The company has a
fairly long production lead time required to fulfill orders. Nvidia used a spread-
sheet-based planning system that was heavily manual and unable to forecast
precisely.
Nvidia’s management realized it needed better forecasting tools and appointed
a supply chain steering committee to recommend a solution. The company
was able to create a much more accurate inventory forecasting system by using
SAP BusinessObjects Web Intelligence and BusinessObjects Dashboards to
analyze data that had already been captured in its SAP Advanced Planning and
Optimization (APO) system. These tools have made it much easier for Nvidia’s
management to access and analyze production data for forecasting and inventory
planning, greatly improving both decision making and operational efficiency.
Here are some questions to think about: How did Nvidia’s inability to forecast
demand affect its suppliers and customers? How is Nvidia’s business affected by
having a global supply chain?

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