1. You can find savings with network modeling. The team quoted that they were able to find $10M in savings just in the initial modeling. In fact, the speakers stressed the tremendous value in just building a baseline model. This allows you to uncover savings, but to also challenge preconceived ideas.
2. Sensitivity analysis is valuable. After narrowing down choices, the team did analysis on the impact of higher oil prices and carbon emissions to rank the solutions.
Bob Ferrari noted that this work can be done with remote teams:
The combined project team performed this task over three months on a
virtual basis, without the need to meet face-to-face until just before
final recommendations. This was an important reinforcement that a
virtual team process can work, with selection of both the right
players, and a single point-of-contact for each constituency.
The speakers also mentioned that through the years they were able to build various models that focused on different parts of their supply chain from distribution to manufacturing.
Gartner RAS Core Research Note G00172071, Andrew White, 17 November 2009
"This research updates users on IBM’s overall supply chain management (SCM) product strategy, which has matured in terms of positioning and product management/strategy since its most recent Ilog acquisition in 2008. We highlight the finalized IBM SCM product portfolio, and highlight how this rationalized portfolio aligns with the SCM trends IBM exposed in its most recent Executive Survey, which also aligns closely with Gartner’s research."
To read the note visit: http://imagesrv.gartner.com/media-products/pdf/reprints/ibm/external/volume4/article31.pdf
Attention Retailers: IBM is attending the Retail Industry Leaders Association (RILA)
Logistics 2010 Conference in Orlando, FL on Feb 21-24 at booth #322.
We invite you to join us on Monday, February 22 from 7:30 to 9:00 p.m. to chat with IBM ILOG Chief
Scientist, LogicTools founder and MIT professor, Dr. David Simchi-Levi,
as well as several IBM supply chain experts. In a retail world where
demand-driven inventory and optimized global supply chains are more
essential than ever, this informal event will give you the contacts and
ideas you need to start making a difference. REGISTER BY February 17th.
IBM is a leader in Operations Research and we offer the world's most advanced optimization solutions for solving tough business and supply chain problems.
The IBM Smarter Supply Chain Management briefing is coming to Toronto on March 4th, 2010! Save the date!
Join us on March 4 at the Intercontinental Toronto Centre's Caledon
Room, to learn how your business can take advantage of these proven
supply chain strategies and tactics to help improve bottom line profits:
1)Optimizing S&OP Processes - Generate real value to the business - Create significant improvement in KPIs 2) Leveraging Network Design to Create Lean Supply Chains - Help reduce costs and better manage risks - Develop efficient production and scheduling systems as more products are moved to the same plant 3) Improving Operational Efficiency - Optimize the production process to improve manufacturing efficiency and reduce inventory - Use a dynamic safety stock approach to improve supply chain flexibility
This one-day event for business executives and supply chain
practitioners will focus on both the strategic and tactical decisions
that are impacted by the current business environment. Thought leaders
from industry and academia will discuss the challenges and
circumstances that are driving the need for business solutions that
optimize overall supply chain costs, free up working capital, and
improve service levels.
I attended the CSCMP Chicago Roundtable event at RR Donnelley last week (February 11, 2009) and heard an interesting presentation by my colleague Jay Jayaraman. He discussed a project we are working on where a manufacturer of a commodity has the choice of exchanging product with a competitor. The idea is that a company can source an order from a competitor’s location that is closer to the intended customer than its current manufacturing base. The impetus being a saving on transportation costs. The key is that both companies can benefit from the swap since they both can reduce transportation costs, and each company keeps their relationships with their customers. Of course, this scenario can only work with commodity-type products.
To take full advantage of the situation, our network modeling and production planning tool, LogicNet Plus XE, can be used to determine the best possible swaps as well as understand all the constraints that impact the results. Doing this type of analysis with Excel can lead to omissions and sub-optimization.
It’s fascinating how collaboration, even amongst “enemies”, can lead to benefits for all…
This week’s Economist magazine has a special report on the
“the data deluge.”The report points out:
“According to one estimate, mankind
created 150 exabytes (billion gigabytes) of data in 2005.This year, it will create 1,2000
exabytes.Merely keeping up with this
flood, and storing the bits that might be useful, is difficult enough.Analysing it, to spot patterns and extract useful
information, is harder still.Even so,
the data deluge is already starting to transform business…”
The article notes that the retailers are one of the leaders
in amassing this data.For example:
“Wal-Mart, a retail giant, handles
more than 1m customer transactions every hour, feeding databases estimated at
more than 2.5 petabytes.”(A petabyte is
Of course, this article fits nicely within IBM’s Smarter
Planter.Smarter Planet’s big ideas are
that the world’s systems will be instrumented, interconnected, and intelligent.
In IBM, the group behind this blog works on solutions to
help firms make more intelligent decisions with this data.Often, due to the number of possible choices,
optimization-based technology is the only way to get value from the information
For example, for retailers we’ve worked with, they have
taken advantage of the data in a variety of ways:
items should be stocked at a store, how the store should be laid out, and where
the SKU’s should be on the shelf—this helps retailers increase store revenue
the warehouses and stores should best be replenished, how the workforce should
be scheduled, how products should flow through the supply chain, locating the
warehouses, and routing trucks--- this helps retailers take costs of their
In each of these cases, simply analyzing the data was not
going to be good enough to extract value from it to give the retailer a
Yesterday, IBM published its 2009 annual report. In the Letter From the Chairman, IBM lays out its growth opportunities for 2010. It lists fours strategic areas for investment. Analytics and Smarter Planet are two of those four areas.
For Analytics, there is great amount of data available and organizations who take advantage of this information will unlock tremendous value. The letter notes:
IBM is moving quickly to capitalize on this promise. We have built the industry’s premier analytics practice, with 4,000 consultants, mathematicians and researchers, as well as leading-edge software capabilities
Of course, this fits with the opportunity IBM sees with its Smarter Planet initiative. In fact, the letter points out some benefits retailers have seen.
Four leading retailers have reduced supply chain costs by up to 30 percent, reduced inventory levels by up to 25 percent, and increased sales up to 10 percent. They’ve done so by analyzing customer buying behaviors, aligning merchandising assortments with demand and building end-to-end visibility across their entire supply chain.
A good example of how this IBM strategy comes together is through our shelf space optimization solution. In this solution, we help retailers place their products in the right place in the store-- from how the store should be laid out, how much space should be given to each products, and where the products should be on the shelf (for example, determining which products are at eye-level). This solution leverages our advanced optimization capability (to determine the placement), our advanced statistical capability (to predict and analyze detailed sales data), and our rules technology (to maintain the system since different regions and stores may be unique in their requirements).
Join IBM Optimization and Supply Chain experts on March 30, 2010 for the webcast: Building a Smarter Supply
Chain: Learn how to position your
business for recovery and growth with better supply chain
decision-making using next generation supply chain optimization. Abstract: Is your business
positioned for recovery? Are your supply chain strategies flexible
enough to manage a rapidly changing and volatile economic landscape?
Join IBM ILOG Optimization & Supply Chain experts to learn how
optimization technology supports flexible business strategies that
enable companies to reduce costs today and prepare for growth tomorrow.
A recent article in The Wall Street
Journal discusses the benefits of a foldable shipping container. This would be a big innovation in shipping.
Inbalances in supply and demand means that shipping companies must pay
to get their empty containers back to where customers want them.
importance of moving empty containers is simple:
a huge expense, a huge headache for the industry," says Neil Davidson
of London-based Drewry Shipping Consultants. The net cost of moving
empties is around $7 billion a year, say analysts.
foldable container would reduce the cost of shipping the empties.
However, these foldable containers cost around $4,000, or twice the cost
of the standard containers. And, the technology
has not yet proven robust enough for the realities of "heat, cold and
salt water of the high seas, and the rough handling of
Right now, the industry is not standing still.
IBM's ILOG Optimization solutions are being used to optimize the return
of the empty containers. The goal of the optimization is to get empty
containers to where they
are needed at the lowest cost. Of course, the containers do not have to
return from where they started and there are options for leasing or
buying new containers.
The problem can be difficult when you
start to consider such things as the different container types, the
capacities of ships, the costs of different modes of transportation, and
the long ocean shipping times.
Besides reducing costs, the
shipping companies using this technology
are seeing benefits in customer service by having the needed empty
containers in the right place at the right time and having the ability
to quickly re-plan when conditions change.
commitment to Analytics and Smarter Planet, provides additional benefits to this problem:
First, since there is variability in demand and supply, it is important
to correctly set the safety stock levels for empty containers at key
locations. Second, it is important to track and trace the containers so
you have better visibility but also to know when a container needs to
be replaced or repaired.
According to an article in Businessweek, "Companies from Tiffany & Co. to Home Depot Inc. are restocking
shelves in a move that will boost economic growth and may keep the
recovery on track through 2010."
The questions many retailers are asking is "what should I restock with?"
Today, we recorded an educational webinar with SC Digest on shelf space optimization-- a great way to answer the question about how to stock your stores. The objective is to keep customers happy at every single store with the right products and, in turn, drive up revenues and profits.
SC Digest will keep the Webinar available for 12 months for viewing. You just need to register to watch it. Click here for the link.
IBM is committed to Analytics and a Smarter Planet and this solution fits nicely with this strategy:
For example, it allows retailers, CPG, chemical, wholesalers, transportation and manufacturing companies to make smarter facility location decisions, smarter territory assignments, smarter sourcing and production planning decisions, and smarter seasonal build strategies.
Many customers confronted with unprecedented risk and volatility in their business, now use IBM ILOG LogicNet Plus XE as a regular part of their business to make better decisions . Ever expanding Integration capabilities makes this easier to achieve.
The new release continues with our tradition of providing industry leading features combined with ease-of-use. Some of the new release features include:
- Enhanced capabilities for modeling manufacturing processes and inventory
- Enhanced ease-of-use though new mapping capabilities, and expanded reporting.
Derek Nelson, the product manager had this to say:
"Early response to the new release has been very positive. The improved ease-of-use and ease-of-integration is helping LogicNet Plus become a standard part of many company's on-going planning processes. Furthermore, this release features some innovative new technology. We are excited to see the continued IBM investment pay off with a substantial new release for our customers. As always, if you have feedback on the product, we would be happy to hear from you."
The coverage of the oil spill in the gulf is starting to focus on BP's lack of a plan in the event of major oil spill.
This reminds us in Supply Chain about the importance of contingency plans. Do you have a back up plan in case something happens in your supply chain? For example, a warehouse, plant, or supplier is no longer available, a port closes, or a border shuts down.
Although problems with the supply chain are hopefully not as globally bad as a major oil spill, it is still important to you and your organization. A supply chain disruption can cause significant loss of revenue, loss of market share, decreased shareholder value, and lost customers. A supply chain disruption is not pleasant for the managers within the firm.
And, it is no longer acceptable to say that you couldn't have foreseen the problem. With modeling tools like LogicNet Plus, leading companies are building and maintaining models of their supply chain. Well in advance, these firms are using the models to develop contingency plans for a wide variety of problems. When something happens, a plan is in place and can quickly be adjusted to meet the needs of the situation. The ease-of-use, robustness, and ability to integrate LogicNet Plus make all this possible.
In one case we are familiar with, a fire at a neighboring plant shut down production. The company was able to quickly determine the best course of action.
An article in DCVelocity provides some great insight into how Whirlpool and Maytag combined their supply chains. Whirlpool purchased Maytag in 2006 and promised the investment community $400M in savings over the first 3 years.
According to the article, $40M of savings per year was going to come from logistics-- freight and warehousing costs. This reminds us how important it is to get these decisions right. And, in Whirlpool's case, the article reported that they were able to overachieve and hit a savings of $66M in the current year.
How they got off to a fast start:
One of the first steps was to determine what inventory was on hand in
both operations so that Whirlpool could determine what to do with it.
The company acquired ILOG's LogicNet Plus suite of network design and
planning software so it would have a tool in place that
could import and crunch data once the deal was finalized (regulations
did not permit the managers to have access to Maytag-specific data until
the acquisition closed).
"When the deal was completed on March 31, 2006, we were in the
starting blocks ready to go. We had our tools in place and people in
place, and we had our own data. We were then prepared to bring in the
The network optimization with LogicNet Plus allowed Whirlpool to determine which distribution centers to close, which new sites should be built, and what the local cross dock network should look like.
We have seen this type of result many times over the years. When a firm grows through an acquisition, having a high-quality network optimization tool allows it develop solid plans for the new network. This creates a foundation for additional improvements and helps a company meet the goals of the acquisition.
In an article in today's Wall Street Journal with the same title as this post, the authors argue that the economic conditions in this recovery are going to be different than the years prior to the recession. Specifically, they mention that capital is going to be much more expense to come by; globalization will continue to put pressure on margins, and rising world demand will drive up commodity costs.
A key part of the article argues that companies will have to learn to finance their growth and investments with their own cash flow.
We are seeing how companies are now adjusting to this reality:
More companies are implementing advanced inventory optimization to reduce inventory to free up working capital for other parts of the business. And, this is not a one-time exercise. These firms are making inventory reduction an on-going part of the business. Our inventory optimization solutions are allowing firms to uncover new strategies to reduce inventory and allow them to maintain optimal inventory levels by integrating this technology with their ERP systems.
This map shows a classic network design case. This client was producing most of its product in northwest Mexico with some product coming from the Virginia plant.
Like many firms, they were just distributing product from the plant where the product was made. The baseline map shows the current situation.
They wanted to do an analysis to determine a better distribution strategy. The result on the right shows the optimal distribution strategy. Thy shipped full trucks loads from the plant in Mexico to the warehouse in Virginia and then on to the customer.
This solution has much more expense in transportation from the plant to the warehouse. However, this is more than offset by the savings on shipments to customers. The optimal solution resulted in $5MM in savings (about a 25% reduction in transportation costs).
Although this case looks rather simple, it wasn't clear at the start whether the best solution would have one warehouse in the center of the country, two warehouses not located at the plants, or a third warehouse. And, it wasn't clear how the country should be split. And, finally, with a lot at stake in terms of savings, and moving capabilities, it is important to do a robust study to make sure you have covered all the angles.