In this month's Harvard Business Review (July-August 2009), George Stalk, Jr.'s article points out that global gridlock will force companies to rethink their supply chain strategies or lose out to more forward looking competitors.
His article sites the growing congestion on the highway system, the ports, the railways, and the airports. The impact of this congestion will be an increase in time and variability in the supply chain.
If your company can master the techniques of squeezing time and variability out of its logistics system, you can avoid some of the degenerating effects of transportation congestion and bottlenecks-- and use your position as a weapon against less savvy rivals.
The solutions we offer can help you take time and variability out of your supply chain:
Network design helps you make product in the right location and place your facilities correctly to reduce overall leadtime
Inventory optimization helps you make the trade-off between air and sea as well as determine how you should position inventory in the supply chain. This helps you better buffer variability or understand the cost of long lead times.
Advanced production scheduling can allow you to react quickly to changes in demand. Combine this with inventory optimization for your raw materials and you can minimize the rigidity of long frozen schedules.
Here is excerpt from the review on the MIT Press website:
Simchi-Levi identifies the crucial element in a company's success: the link between the value it provides its customers and its operations strategies. And, he offers a set of scientifically and empirically based rules that management can follow to achieve a quantum leap in operations performance.
Flexibility, says Simchi-Levi, is the single most important capability that allows firms to innovate their operations and supply chain strategies.
David Simchi-Levi is the founder of LogicTools which is now part of the IBM ILOG Optimization and Supply Chain Solutions group. He is still actively involved in IBM.
This group offers solutions in network optimization, inventory optimization, detailed production scheduling, routing, container optimization, shelf space optimization, and other areas that can help companies implement the ideas from his book.
In another article in this month's Harvard Business Review (July-August 2009), "Management as a Science" was cited as one of the trends executives should watch.
Management as a science uses mathematical models and data from operations to help executives make better decisions. Our supply chain planning applications are a great example of models helping firms make better decisions.
The authors point out that despite some recent failings of some high-profile financial models, the trend towards management as a science will march on. They note that the tools need to become more dynamic, that they need to integrate more real-world feedback, and that "business executives need to get better at using them."
ILOG's supply chain planning applications are well positioned within IBM to help firms take the lead in this trend. Supply chain executives benefit from:
The ease of use to fully use and understand the results of the models
IBM commitment to providing more real-time data and feedback
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.
Memories of having to take unexpected markdowns of up to 70 percent on
leftover holiday merchandise during the recession prompted retailers to
keep inventories low during the critical months of November and
December. The strategy has helped retailers better manage their
businesses, but it also means clearance racks are expected to be thin.
Good inventory optimization are critical to a firm's success. Only by optimizing inventory across the supply chain can you truly optimize inventory within the stores. This often can involve both the retailer and the suppliers jointly optimizing inventory. Proper inventory optimization can give your supply chain the flexibility to meet unexpected high demand with a minimal amount of inventory invested in the system.
As retailers try to continue the momentum of this holiday season, inventory optimization will play a critical role--- too much inventory creates a financial risk if sales do not materialize and too little inventory creates a risk of losing revenue or market share.
Inbound Logistics Magazine (Nov 2008) reports that Home Depot is seeing some early success from its strategy to reduce prices by "five to 50 percent on as many as 1,200 items." This strategy was put in place to help drive sales and encourage consumers to purchase more items per visit.
To make this strategy work, the supply chain had to support the initiative. That is, the supply chain had to deliver significant cost savings. The article states that Home Depot undertook
a major supply chain overhaul as the company looks to better manage transportation and increase inventory turns by reducing direct-to-store shipments and progressing toward a more regional DC-centric distribution model. In the past, stores stocked inventory in lieu of using distribution facilities.
This short article underscores the importance of strategic supply chain design. Having the correct number, location, size, and territories of your distribution centers is critical to achieving your objectives. Companies need to stay on top of the structure of their supply chain to ensure that it changes as the business changes. As this story from Home Depot points out, it was initially important for vendors to ship directly to stores. But, as the market changed, it was important to use regional DC's.
Strategic network design products can help you determine how many facilities you need, where those facilities should be, how big they should be, and which stores or customers they should service. Done right, this effort can help you significantly reduce costs, improve service, or both.
Retailers have long tried to balance the trade-offs between transportation and inventory costs by picking the correct delivery frequency. If you deliver to your stores every day, you can get away with minimal inventory investment, but transportation costs are high. If you deliver once a week, transportation costs are low, but you need a lot of inventory to avoid costly stock-outs.
Recently, more retailers are taking advantage of advances in transportation and inventory optimization to develop better strategies.
The same trade-off exists, but retailers are finding that they can do better by having different strategies for different stores or for different products.
For example, some stores may get daily deliveries while others receive shipments only twice a week. In addition, some products may take a different path to get the store rather than the normal delivery truck.
IBM released its 2010 Global CEO study, Capitalizing on Complexity. "Previously, CEOs have consistently identified change as their most
pressing challenge. Today, CEOs are telling us that the complexity of
operating in an increasingly volatile and uncertain world is their
primary challenge. And, a surprising number of them told us that they
feel ill-equipped to succeed in this drastically different world."
One of the key insights is the CEO's desire to build operational dexterity: "CEOs are mastering complexity in
countless ways. They are redesigning operating strategies for ultimate
speed and flexibility. They embed complexity that creates value in
elegantly simple products, services and customer interactions."
This focus on "speed and flexibility" fits well with our recent work on flexibility and the ILOG Optimization and Supply Chain solutions. For example:
manufacturing firms are looking to determine which plant should make which product
retailers are looking to build in flexibility with better flow path strategies and better shelf space planning,
plant managers are looking for advanced scheduling optimization to create more day to day flexibility
shipping companies looking to create flexibility by quickly and cheaply getting empty containers back to the correct location
inventory planners are building better flexibility and responsiveness by maintaining correct inventory levels and identifying the root causes of inventory issues.
IBM identifies three broad categories of analytics activity: descriptive (what happened?), predictive (what will happen?), and prescriptive (what should we do?). As you move from descriptive activities to prescriptive, you are bringing more value to your organization.
The ILOG optimization and supply chain applications fit into the area of prescriptive and play a key role in IBM's overall strategy. The article sites an example:
In the supply chain area, advanced analytics are often used to produce and/or deliver a set of services or products as efficiently as possible in order to meet defined customer needs or demands. Advanced analytics techniques such as inventory optimization, advanced planning and scheduling of resources or production plans, and supply chain network design/optimization represent common ways that companies apply advanced analytics to improve their ability to minimize the costs of delivering upon a given set of business and marketing goals associated with perceived customer needs and desires.
Of course, prescriptive analytics does not stand alone. You need to provide input data, build this into an overall work flow, and be able to act on the results. IBM is uniquely positioned to help firms effectively compete with analytics. The last sentence of the article sums up IBM's business analytics strategy: "IBM is aiming to be the a market leader in business analytics."
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.
IBM's ILOG and Sterling supply chain teams have been named to the Top 100 Logistics IT Providers for 2011 by Inbound Logistics.
This echos the comment from last year from SupplyChainDigest that" Somewhat quietly, IBM is building a formidable portfolio of supply chain software solutions that has the potential to shake up the existing market."
IBM ILOG CPLEX Optimization Studio 12.5.1 is now available and brings another breakthrough in performance in solving mixed integer programs. Mixed integer programming models are solved on average 15% faster than the industry-leading prior release 12.5, on models requiring 1 second and above, and for the more challenging group of models requiring at least 100 seconds the average speedup is 40%. As a result of this breakthrough performance, two of the previously unsolved MIPLIB 2010 models have been solved: ns111636 and tw-myciel4.
Also included in the release are:
Additional scripting functions for use with the Optimization Programming Language. These extend the the conflict and relaxation iterators and support multiple MIP starts.
New methods in the conflict iterator class of the Java and .NET APIs of the Optimization Programming Language
Extension of the CPLEX Optimizer remote object for construction of parallel distributed algorithms to Concert Technology for Java and C++
Lift and project cuts in the CPLEX Mixed Integer Optimizer
Enhancements to the CPLEX Optimizer presolve algorithm which result in faster solutions for some mixed integer programming models with quadratic terms
Ability to control generation of QCP duals in the CPLEX Optimizer