Optimization in and of itself is nothing new but it is
often overlooked by Line of Business and Information Technology
professionals since many instances of it are embedded inside "classic
supply chain management applications". Optimization allows companies to
make sense of the massive amounts of data across the extended
enterprise. By applying this data in unique and innovative ways, firms
can optimize business outcomes by anticipating, controlling and adapting
to a dynamically changing and chaotic environment, using the insights
from visibility, analytics and trading partner collaboration to direct
and control operations more intelligently.
With the advent of "Optimization 3.0",
firms now have the ability to layer or integrate key advanced analytics
technology on top of existing supply chain planning and execution
systems to support both long-term (strategic) and short-term (tactical)
planning goals as well as detailed scheduling while continuously
improving operational efficiency, reducing costs and ultimately
enhancing the overall customer fulfillment experience. This new
combination of State-of-the-Art advanced analytics and B2B integration
gives businesses the unprecedented ability to quickly model and solve
across the most complex systems and implement solutions in near
real-time, creating truly adaptive supply chains.
This live complimentary event will show you how IBM, through its ILOG® Optimization and SPSS portfolio and Business Analytics & Optimization service line, enables organizations to quickly and confidently answer fundamental business questions, from: Who will be our most profitable customers tomorrow? to What price will maximize profit from sales?
Highlights: • Advanced Analytics – Unifying the Worlds of Statistics and Operations Research • Demo – Illustrating the combination of IBM ILOG CPLEX® and the IBM SPSS Modeler • IBM ILOG Optimization Workshop • IBM SPSS Data Mining Workshop
Learn and share best practices in implementing advanced analytics to your most critical business decisions.
If you are going to be at SCOPE East in Orlando in April (17-19), 3M and IBM will be doing a talk. And, the IBM supply chain group will have a booth at the event--- we will be under the Sterling booth.
Here is a description of the talk:
"Applying Supply Chain Analytics: Benefits of a Central Group"
This talk addresses the value firms can achieve by deploying
advanced supply chain analytics and how a group should be structured.
We will use case studies and recent events (like the run up in oil
prices) to highlight the value from analytics such as network and
inventory optimization. 3M will discuss how they are organized to
deploy this capability.
Hu (Tiger) Liu, PhD, CSCP, Supply Chain Specialist for Manufacturing & Supply Chain Services, 3M and Michael Watson, PhD, ILOG Supply Chain Solutions Leader, IBM
In the recent letter from the chairman in IBM's 2010 Annual Report, Sam Palmisano discussed business analytics and optimization as a key part of IBM's future growth strategy:
IBM spotted this emerging need early, building the
world’s leading analytics practice, with 7,800 expert
consultants, the world’s premier nonacademic
mathematics function, leading‑edge software and
offerings integrated by industry.
As a reminder of a detailed explanation and definition of analytics from an IBM team, click here.
Lean principles have many virtues. However, as a system primarily created by Toyota and then widely adapted to other businesses and industries, some firms are having second thoughts about some key Lean principles.
Specifically, if lean principles are applied just to the manufacturing sites, it may decrease the flexibility in the system and push inventory to other parts of the supply chain. For example, in the diagram below, if the manufacturing plant decreases their production variability by locking in firm schedules and minimizing their inventory, it may push inventory to the warehouses.
Executives realize that their supply chains need flexibility and that it is best to minimize system-wide inventory, not just inventory at the plants. Inventory optimization analyzes the entire supply chain to determine where inventory should be buffered. In some cases, it may provide more flexibility and less system-wide inventory by creating an inventory buffer at the plant. Inventory optimization provides a way to analyze these trade-offs and better adapt the lean principles to your unique organization.
This blog has often commented on the price of oil. Oil prices have a big impact on the supply chain. As oil prices change, it impacts the cost of raw materials, productions, and transportation. The change in these costs impacts the trade-offs that a firm needs to make.
For example, as the increase in oil prices drives up transportation costs, it can change where product should be made, the mode of transportation used, and the inventory strategy.
Several years ago during the big run up in oil prices, we wrote an article for The Wall Street Journal that discussed how the supply chain strategies needed to adjust to the new prices. As oil prices fell, we wrote an reminder that it was still important to analyze the impact on the supply chain. In both cases, it is important to understand the trade-offs between transportation costs, sourcing decisions, and inventory and adjust the supply chain accordingly.
As oil hit $100 a barrel this week, it is worth recalling these lessons. More firms have invested in more flexible operations, but the basic lessons remain. It is important to adjust your supply chain to fit the realities of the market.
Smarter inventory analytics is about using your investment in inventory wisely. This means optimizing your inventory-- setting the right inventory levels for each SKU at each location, optimally positioning and buffering inventory in the supply chain, setting the correct service levels, and determining the correct flow paths.
With optimized inventory you can:
Free up cash and create more liquidity
Drive up sales through better availability
Reduce expediting costs
To reap the benefits of inventory optimization, it is not just about the optimization technology. You need to integrate into your ERP system for on-going updates and build the capability into your processes.
If you are interested in more details, contact us for a white paper on how to achieve better performance with your inventory.
Many S&OP processes stop with the sales planning. When you extend your S&OP process to include optimization through a tool like LogicNet Plus XE, you can reap many benefits.
The picture to the left is shows some highlights from an S&OP case from a beer company. On a monthly basis, as part of the S&OP process, the operations of this beer company are modeled and optimized in LogicNet Plus XE. The details below the map provide information on how much beer, by product by month, is shipped to each of warehouses and how much product is produced in each month. The graph shows the inventory build up in the supply chain by warehouses.
Besides providing insight into the operational cost and capacity implications of a given sales plan, the results also show the impact on total revenue, operational gross profit, and total pre-build inventory.
These results can also provide insight into the sales plan. For example, it can determine the cost and feasibility of promotions, it can suggest additional demand shaping activities by looking at under-utilized capacity.
In this case, the firm analyzed different demand plans around the implications of a marketing program to grow demand in a region, the implications of a promotion for a specialty product, and the implications of a price increase.
In 2008, after undergoing a grueling third-party logistics provider
(3PL) selection process, Navistar chose San Mateo, Calif.-based Menlo
Worldwide Logistics, the global supply chain management subsidiary of
Con-way Inc., to support it in improving its global logistics network,
including managing global transportation providers and regional
warehouses, planning lead times, and modeling net landed costs.
He reports that one of their goals was a 25% reduction in supply chain costs. He reports that at "the end of the partnership’s second year, we will have achieved
11-percent cost savings, out of the 25-percent goal we set for the next
When discussing the reasons Navistar selected Menlo, he mentioned their "global coverage, cross-network planning, and optimization capabilities."
This is a very interesting article discussing the challenges of building a new global supply chain from the ground up. It is also interesting that modeling net landed cost and optimization capabilities were mentioned as key factors in the transformation of the supply chain. This mirrors some other findings that leading supply chains are relying on optimization-based technology to help drive improvements.
Finding good routes can reduce transportation costs by 5-15%.
Finding great routes can reduce costs by a further 5-10%.
These savings can add up fast.
However, finding these great routes can be difficult.
On one level, routing seems trivial. If you have 75 shipments to make, you can easily look at a map and come up with routes. If analyze the routes, you can probably make changes to reduce costs. But, how do you know if you've found good solution? How do you know if you've found a great solution?
What is not obvious at first glance is how many total possible routes exist in a routing problem. In a problem with just 75 shipments, if you allow up to 10 stops per truck, the total possible routes exceed 10 to the 100th power (10 followed by 100 zeros)! Even with today's computing power, there is no way to evaluate each of these options.
And, the problem becomes harder when you consider delivery windows, different types of trucks, the ability to do backhauls, making making multiple trips with the same vehicle, and so on.
This is where IBM's optimization expertise comes in. Both the IBM ILOG Transportation Analyst and Sterling TMS use the ILOG CPLEX Optimizer to find great routes. The ILOG CPLEX Optimizer product contains a module for Constraint Programming (CP). CP is well suited for tough scheduling and routing problems, especially routing problems with time windows. It is this optimization technology that allows to you to find great solutions.
We received a lot of good feedback from the virtual users group meetings in 2010. These 1-hours meetings are a quick way to brush up on your IBM ILOG
supply chain modeling skills, meet other people using the products, ask
questions to the community, and learn about what's new. These sessions
will be led by our experts and have plenty of time for discussions and
Like last year, we are open for ideas for sessions. Please send us your ideas. If you are not on the invite list for the events, please let us know and we'll make sure we add you.
Here is the schedule for 2011. The times will be announced closer to the meeting in the invite.
February 1st - Tuesday. Topic: Transportation Optimization Capabilities in relation to Network Design March 1st - Wednesday. Topic: Advanced Tableau Capabilities
April 1st - Friday May 4th - Wednesday June 1st - Wednesday August 2nd - Tuesday September 1st - Thursday October 7th - Friday November 2nd - Wednesday December 2nd - Friday
These dates may be subject to change. We look forward to seeing you at the meetings.
Today's Wall Street Journal (WSJ) reported on IBM's big push into Analytics: "IBM Chief ExecutiveSam Palmisano is making a big bet on a field called business analytics, which
involves using software to mine huge volumes of data to help executives make
For more information on what business anlaytics is, how it helps makes better decisions, and how our supply chain and optimization solutions fit in, click here.
Earlier, we recorded a session with SupplyChainDigest on strategic sourcing. This session covers how firms can better use their manufacturing network. For example, where should a product be made and at how many of the plants. These decisions can impact manufacturing costs, transportation costs, and the ability of your supply chain to meet its objectives.
This use of LogicNet Plus XE (LNP XE) is part of a larger trend. More firms are using LNP XE on an on-going basis to gain a competitive advantage in the market. This can range from strategic sourcing to budgeting to contingency planning. This is a way to leverage your supply chain data and bring advanced analytics to your supply chain.
Click on this link for a video on strategic sourcing. You will need to submit your email to register and you will be all set.