"There’s no question that your customers are in charge. They
have more information, more access, more influence. They’re savvy, and
Building on Smarter Commerce Global Summit in San Diego last year,
and the recent Summit in Madrid, the footprint expands with a Smarter
Commerce Summit Orlando 2012!
Smarter Commerce Summit 2012 provides business executives and
practitioners, with the insight and resources to effectively connect
with today’s customers. An event like no other, it combines over 150
business and practitioner breakout sessions comprised of new technology,
best practices, industry perspectives and visionary thinking, all to
help you optimize your business. It is the single largest gathering of
experts and peers for discovering new solutions to today’s most complex
As a supply chain professional, you will get a lot out of the conference's many talks and keynote sessions. If you are an ILOG customer, some talks that may be of direct interest include:
The Supply Chain Revolution: GE Healthcare Uses Optimization to Manage their Global Supply Chain: Best-in-breed, smart and adaptive supply chain networks are the next
major wave of innovation in supply chain management. Learn how several
groups within GE Healthcare are using ILOG Optimization solutions to
make ongoing intelligent supply chain decisions. By building optimal
distribution networks and service strategies, GE Healthcare and its
relevant business units are reaping the benefits of a more competitive
and agile supply chain, resulting in better margins and profits. Join
this session and learn how you can do the same.
Managing LTL Decisions with Optimization: Over the last six years, a team of experienced and committed supply
chain and outbound specialists have leveraged optimization and analytics
to significantly transform the CNH North American Distribution network
making it one of the most efficient networks in the Industry (as
measured by the North American Service Part Conference) both in terms of
service to the customers (internal and external) and in terms of costs
Inside Scoop: Examining IBM's Supply Chain Roadmap and Strategy: When all participants are aligned, the interconnected supply chain can
cost-effectively keep supply and demand in balance--however, volatility
is on the rise. Join us as we discuss our strategy to deliver solutions
that effectively manage global volatility, optimize your supply chain
network, create an inventory and logistics strategy, execute global
logistics, detect risks early and help you react quickly to avoid
inventory issues and lost sales.
Reinventing Decision Making with Optimization. Optimization can be an intimidating concept for business executives.
This presentation explains in business language, beginning with the kind
of bottom-line results you can achieve, what optimization is, what it
uniquely adds to an organization's decision-making capability, and how
you can go about exploiting its potential.
Making Your Business Work Smarter with Optimization: Companies
across the globe are using optimization technology and solutions to
increase ROI and achieve deeper insights into business efficiency and
competitiveness. Join us to learn how optimization is being used across
a spectrum of industries for strategic advantage, and how you can
achieve the same results for your organization.
Is Product Bundling Right for your Retail or CP
Optimize your Supply Chain While Juggling Multiple Objectives: Learn how the powerful optimization techniques developed by IBM can
improve the efficiency and results of network design analyses, and find
out how you can achieve multiple objectives while still getting more
value from your supply chain.
Creating a Global Inventory Hub to Support the Right Plan, Right Promise and Right Fulfillment: Large, global manufacturers have a major challenge in deciding how much
inventory to keep, where to keep it and how to accurately promise it to
customers. On the one hand, companies want to stay as lean as possible,
yet on the other, they have to ensure that customer service levels are
met. In this session, we will discuss how IBM Order Management can be
used as a unified hub to manage inventory across business units,
stocking locations, business units and even different systems of record
(ERP or WMS). The IBM Inventory Planning and Flow Analyst solution
complements the Order Management hub by determining what the optimal
safety and cycle stock levels should be given different assumptions
about demand patterns, variability, and more.
Using Analytics in Supply Chain Optimization: Find out how a leading company is using optimization analytics in
inventory placement, network design and truck routing, along with a
sustainability analysis engine and profit and loss simulation. Join this
session to see how they have been able to achieve dramatic results in
their supply chain operations.
Manage Suppliers and Mitigate Risk: The uncertainty, volatility and fast-changing environment of a global
marketplace creates challenges all across the supply base. Techniques to
mitigate and counter risk, create transparency on global supplier base
and manage supplier relationships are key development for the today's
CPO. Join this session and to learn how companies can qualify, evaluate
and optimize suppliers to improve overall supplier reliability, drive
innovation, encourage competition and rationalize the supplier base.
Learn how to ensure corporate responsibility and increase sustainability
in the supply chain, and to effectively manage the end-to-end supplier
Supply Chain Visibility: Applying Analytics to Integrate and Optimize the Supply Chain: Visibility is a top challenge for supply chain executives.
Multi-enterprise supply chain visibility is a key capability for
reaching new levels of effectiveness and efficiency and enabling a more
end-to-end approach to optimization. In this session, you will hear
IBM's point of view on supply chain visibility and get best practices
for collaborative supply chains. You'll also learn about the advanced
analytics capabilities IBM clients are using today--and within IBM's own
supply chain as well.
The Executive Guide to Optimization:What does the optimized organization look like and why should this be
top-of-mind for the executive decision maker? Steve Sashihara, President
and CEO of Princeton Consultants discusses best practices for
recognizing optimization opportunities and how to ask for them.
Workin' on the Railroad with Maintenance Optimization:Learn how to get the most value from your railway assets by improving
internal processes to help ensure resources are not wasted.
Creating a Smarter Supply Chain with Analytics:What if you could reduce costs and increase customer satisfaction by
managing, controlling, and predicting inventory levels, while
synchronizing global communication and collaboration with your customers
and suppliers? Learn how your organization can become smarter by
attaining insight from your information to make better decisions. You
will also discover the growing role analytics plays in every aspect of
Is Your WMS Future-Proof?:We live in a constantly changing world. And that is especially true for
businesses with acquisitions, mergers, new channels, partners,
outsourcing, and more. How easily your business can adapt to such change
is, to some extent, determined by how quickly your systems can change.
Have you invested in solutions that allow you to be flexible enough to
change as rapidly? Learn how IBM Sterling WMS can future-proof your
business to provide you the flexibility to be able to respond to change.
ILOG Supply Chain applications for network design, inventory optimization, and transportation optimization
ILOG Optimization solutions for unique scheduling and planning applications
Sterling TMS for SaaS for transportation management
Sterling Order Management and Supply Chain Visibility for distributed order management and visibility. This, for example, enables retailers to better handle their multiple channels and gain control of their supply chain
Emptoris for strategic supply and contract management
DemandTec for trade and promotion management and optimization
Cognos and SPSS for supply chain descriptive and predictive analytics. For example, Cognos and SPSS have been deployed for value added S&OP.
If you want an educational demo of our network design solution using our LogicNet Plus XE product, check our video on YouTube. Click here for the link.
video gives you an introduction to the concepts of network design, shows you the software, and highlights the some of the powerful capability like multi-objective optimization. The focus of this video is on
traditional network design-- locating the optimal number, location,
size, and territories of warehouses.
IBM recently launched a national television ad on Smarter Commerce. It is definitely worth a quick view.
For supply chain professionals, what is interesting is this ever growing importance of the supply chain in meeting your firm's strategy. As the ad points out, once new trends are spotted, you need to make sure your production and distribution capabilities are flexible and robust enough to meet the new demand.
This is where supply chain optimization can help. It helps by making sure you can re-optimize production plans, distribution plans, and that you have strategically placed inventory within your system. Often, this means that you have positioned key raw material components so you have maximum flexibility (click here for a white paper on the role of inventory optimization).
Since last year, there is a lot that is new with IBM's supply chain software solutions. If you are at the conference, make sure you meet up with us. We have several talks, a large booth, and are happy to set up a session with you.
Come see our talks:
Tuesday, October 4 at 10:00 am “’Smarter’ Commerce: Closing the Gap Between Planning and Execution” in the Supply Chain of the Future I track (Michael Watson, Ph.D IBM; Gene Nusekabel, IBM). Location: Hall B, Supply Chain of the Future Amphitheater I
Tuesday, October 4 at 3:00 pm “’Smart’ X-SCM Tools: Keys to a More Risk-Tolerant Supply Chain” in the Current Issues II track (Richard Douglass, IBM; Stephan Dean, Ryder; John Tomcala, Johnson Controls) Location: Room 109B
And, be sure to stop by our booth to get more details on our software solutions for the supply chain:
Learn what is new with network design and optimization, inventory optimization, and transportation optimization
Learn about our hosted TMS and Supply Chain Visibility solutions
Learn about how all of this fits into IBM's Smarter Commerce initiative. IBM has identified several big new trends that will have a big impact on business and the supply chain.
If you will be at the conference, please let us know.
Deciding where to locate your manufacturing plants or where to make a product can have significant impact on your overall cost and your ability to serve your customers. However, this is not a trivial decision and depends on many factors.
Over the last several years, the press has reported on the move of manufacturing from the US to China. However, two recent in articles in The Wall Street Journal and Bloomberg Businessweek, show that the issue is much more complex.
Both articles point out that rising wages in China erode the labor cost advantage. And, the rising cost of commodities and especially oil, tip the scales even further. Both articles indicate that there will be a speed up in new manufacturing capacity being built in the U.S.
Certainly, moving production to China was not the answer for many firms. The Wall Street Journal article points out that rising productivity has allowed US manufacturing output to actually double from four decades ago. And, many firms chose to keep manufacturing in the U.S. to protect intellectual property, to be closer to the market, or to minimize inventory investments.
At the same time, over just the last five to ten years, we have seen firms build manufacturing capacity in China for the China market. So, as consumer demand increases in China, more manufacturing capacity is needed to service these markets. This new demand must be accounted for in decisions on where to locate manufacturing capacity.
Deciding where to locate manufacturing capacity becomes even tougher when you factor in the impact of taxes, inventory, and risk.
So, how should you determine where to locate your manufacturing capacity? The answer is not simple, but should consider the following:
An analytical tool to consider all the cost impacts (labor, transportation, raw materials), tax implications, inventory implications, and service levels.
A analysis of the amount of flexibility. Some questions include: Should plants make all products and service their local markets? Should plants be more focused to increase productivity? How much flexibility should we have?
A risk analysis. How much risk are you willing to tolerate? What is the cost if something happens to one of your facilities? What is the cost of building redundancy in the supply chain and is it worth it?
Product analysis to determine what to make where. Even within a fixed network of plants, you have choices in what should be made where. By doing this correctly, you can significantly improve your performance.
This type of analysis is not a one-time event. You have a chance to mold your strategy everytime you make a capital investment in your supply chain. And, the more facilities you have, the more opportunities you have to adjust your supply chain when market conditions change.
An important part of merger and acquisitions is the value created when the two supply chains come together. For example, MillerCoors reported on the progress toward their $750M savings goal on May 4, 2010:
"Supply chain integration continues to proceed on schedule. The brewery
optimization project is nearing completion, as product moves are more
than 90 percent complete."
Without a analytics modeling tool, like IBM's LogicNet Plus XE (click here for a video introduction), it can be difficult to properly merge the two supply chain. Each firm has unique products, unique manufacturing locations or vendors, unique warehouses, unique customers, and different business strategies. By modeling and optimizing the supply chain, you can evaluate the various trade-offs, understand where there is true overlap, and understand where separate supply chains are still needed. This modeling process allows you to accommodate the two businesses, deliver savings, and avoid creating a situation where the costs go up for both firms.
MarWrigley spoke at CSCMP about their modeling experience and noted the value in just getting a baseline model built. That is, as part of the merger process, there is value to seeing the combined supply chain in one place.
Whirlpool mentioned the importance of getting off to a fast start. Often a merger is known about long before the two firms can legally talk to each other. Therefore, it is important that you start as soon as it is legally possible. The investment community usually expects to see some quick savings.
In some firms, the supply chain modeling team is often an input to the acquisition process. Some firms model potential acquisition targets to approximate supply chain savings. And, this type of analysis can help determine if part of the business should be spun off.
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 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.
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.
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.
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.
We had the privilege of speaking with MillerCoors at the annual CSCMP conference in San Diego earlier this year. In that talk, they discussed how a significant amount of the $750 million in synergies came from the combining of the Miller and Coors supply chain.
The press release reports on the progress of the supply chain transformation as well as the on-going efforts to improve the supply chain:
In the third quarter, MillerCoors successfully completed initial product
transitions within its national brewery network. The company will
continue to focus on further network optimization through peak/non-peak
season sourcing changes, as well as opportunities for increased
We see many firms relying on advanced analytical solutions, like LogicNet Plus XE, to help drive savings in the supply chain. The savings can come from combining distribution networks, optimizing production decisions across the supply chain, and reacting to the changes in demand patterns throughout the year.
We are presenting a SC Digest Videocast on Tuesday, December 14 at 11:30 EST. Here is a description of the Videocast:
Increased complexity requires a complete supply
chain network based approach to sourcing that incorporates end to end
cost from supplier to customer and all of the associated manufacturing,
logistics and inventory costs in between.
A network based approach enables
the ability to meet sales demand, reduced transport miles, efficient
production, improved asset utilization and capital deferment, which,
results in increased revenues, lower production costs, lower
transportation costs, and increased manufacturing capacity. Another key
component is understanding how robust the supply chain is to different
events or risks and designing the supply chain to withstand 'shocks'
frequently experienced in today's large global supply chains.
Join IBM ILOG to learn how top
performing Consumer Products companies are leveraging sourcing
optimization to drive customer service and system profitability through
effective asset use.
On Sept 15, SupplyChainDigest and IBM will be hosting a videocast on building smarter consumer products supply chains. Click here to sign up for this event.
The following is the text from the registration site with more information: ------------------------------------------------------------------------
Videocast Series: Building Smarter Consumer Product Company Supply Chains
Part II: Capitalizing on Supply Chain Complexity and Your ERP Investment in the Consumer Products industry
the first part of this series, we covered the importance of mastering
operational dexterity in the Consumer Products (CP) industry to enable
fast and flexible operations that help businesses find advantages in
Next in this IBM series on Building Smarter Consumer Products Supply Chains,
we will explore the ways in which companies are capitalizing on supply
chain complexity and ERP investments. We will discuss top executive and
supply chain challenges in the consumer products industry, including
customer case studies focusing on the following issues:
High speed of M&A activity
Globalization of the food supply
Focused consumer markets requesting niche products, pressuring the complexity of the supply chain
Increased retailer collaboration and price pressures
We explore all this and more in this outstanding broadcast. Featured speakers include:
Remzi Ural, Global Supply Chain Solutions Manager, Consumer Products Industry, IBM
Michael Watson, IBM Optimization & Supply Chain Solutions, Technical Sales Lead
A retailer with multiple different chains of stores produced a specialty food product that was needed by different chains. Since the chains ran independently and had different requirements, they sent separate trucks to each chain. Also, the firm ran static routes so each store could get to better know the driver. These routes did not change frequently.
They used Transportation Analyst to determine the benefits of combining the shipments for the two chains together. For example, a truck would leave the warehouse and visit stores from each chain on a single route. Before they changed their business practices, they wanted to understand the potential benefit. They found they could reduce transportation cost by 7% and while providing better service. While it may seem obvious that combining shipments would yield savings, it is important to quantify these to understand the value of the change prior to making the change.
This study is part of a trend we are seeing. More firms are looking for savings opportunities through new transportation strategies. They are not only applying transportation optimization to the current practices, they are using the technology to look for new ways to do business.
For example, the map on the left shows an example of mode selection--- which customers should be served private, commercial, or LTL carrier, and for the truck load moves, which ones are multi-stop and which ones direct.
In addition, it is also important to analyze the back haul opportunities. That is, your selection of the outbound mode can depend the opportunities for picking up product from a supplier and bringing it back into your facility.
We are hosting a supply chain users group in San Diego on Sept 26, 2010 just prior to the start of the annual CSCMP Conference. The users group meeting will take place in the same location as the CSCMP event.
For more information on the event, please click here.
We are still finalizing the agenda. If you would like to speak or have ideas on what we should cover, please let us know.
A recent brochure from IBM Research noted that "for the last 60 years, Research has been one of IBM's key differentiators in the marketplace, making the kind of discoveries that shape the future of business, government, academia, and society."
This brochure highlights work ranging from improved water management, to traffic management, to sensing complications in premature infants before they happen. This report also highlights the value of strategic network modeling.
The report highlights the work IBM did with the Chinese shipping giant, COSCO. They were able to reduce the number of distribution centers from 100 to 40, reduce logistics costs by 25%, and reduce CO2 emissions by 15%.
The image shows the conceptual view of the before and after of the supply chain.
Many firms are able to find savings like this through strategic network design studies.
For more details on some of IBM's software capabilities in strategic network design be sure to watch our two part (15 minute total) video: part one
and part two.
If you want an educational demo of our network design solution using our LogicNet Plus XE product, check our video on YouTube.
The video gives you an introduction to the concepts of network design and takes you through a case study. The focus of this video is on traditional network design-- locating the optimal number, location, size, and territories of warehouses.
Correctly positioning and buffering inventory can help you create a more flexible supply chain with lower costs.
In the military, it is common practice to pay suppliers on a "cost plus" basis. Effectively, this makes all the suppliers a "make to order" location. That is, the suppliers can only make product when there is a firm order. There is no mechanism for the supplier to make product in advance, sit on safety stock, and provide faster service.
Keeping helicopters flying is not trivial. They are made up of many parts and operated in tough conditions. Many of the key parts(drive shafts, sycn shafts, blades) require many sub-components and must be made with specialized materials in a high-precision manufacturing environment.
The supply chain for these key parts can be very long (measured in many months), and it is expensive to keep enough of these items around as spare parts.
With the current system, each key part had to either be stored in inventory as safety stock (waiting to be needed) or the the military had to wait for the supply chain to produce another (creating a backlog of demand and a helicopter that was grounded). Neither alternative was great.
A better solution is to optimize the placement of strategic buffers in this supply chain. The chart below on the left shows the existing supply chain. The yellow box on the right represents the customer (the military) and a key part. The gray boxes to the left represent all the steps in the supply chain needed to make this particular part. You can see the complexity of the supply chain. In the baseline, the entire buffer is held by military, represented by the red bar.
In the optimal case, the suppliers hold buffers. These buffers are seen by the red bars. The inventory optimization identifies where and how big these buffers should be. Now, the military can keep the helicopters flying with much less money tied up in working capital (or worse, with many helicopters not being able to fly).
Of course, implementing this solution is not trivial. Contracts with the suppliers have to be re-worked to allow them to create and maintain the safety stock buffers.
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.
The website highlights why the concepts from the book are important. For example, Jim Champy, the coauthor of Reengineering the Corporation says:
"Companies today are faced with an increasing number of choices in
operational and supply chain strategies. This book goes beyond just
showing how to make the right operational decisions. It makes the
critical link between operations and providing more value to customers.
It's a must read for anyone involved in operations and strategy."
Also, a key concept discussed is the fact that many companies offer different value propositions through different channels or brands. These different value propositions imply that the company may have different supply chains. However, the company cannot simply operate their supply chains separately. They need to take advantage of synergies where it makes sense. Click on the S&OP video in this link for more information
quietly, IBM is building a formidable portfolio of supply chain
software solutions that has the potential to shake up the existing
Also, the article noted IBM's existing solutions in network optimization, inventory optimization, and factory scheduling and that "IBM
has been very aggressive in promoting these solutions, such as by
adapting them for new opportunities into the retail sector."
Bajaj, Head – Solutions and SCM Strategy at AFL’s Logistics Division
said: “AFL chose IBM’s iLOG software for several reasons, chief among
them – robustness, post-purchase support and a clever user interface
that makes data modelling both simple and secure. This unique
combination of AFL’s domain expertise in logistics and iLOG’s superior
design and modelling capabilities, have helped us unlock significant
value in our clients’ supply chain metrics.”
“Supply chain strategy is very hard to get your arms around,” Smith agrees, “in part because it never really ends.”
At first, he said that there also isn’t really a right or wrong answer for a supply chain strategy, implying there may be several paths to the same goal, but then he qualified that thought: “It doesn’t have to do with all the tactical stuff we need to get done every day to run our businesses. A strategy is not about describing how we keep getting boxes out the door. It’s a 3, 5 or 10 year lookout that is coordinated with your business so that the supply chain is servicing the business effectively.”
Key to that is a chief supply chain officer that is able to articulate and sell that strategy to the top. “If you can demonstrate to the CEO or CFO that you have a good plan that is going to add to the bottom line, you’ll go a long way. Let’s face it, today the top lines are shrinking for most companies. If you can show how supply chain can add profit to the bottom line, you’ll get their attention.”
This quote reminded us of the value of continually evaluating your supply chain and being able to prove the value to upper management. We have seen many firms using our network optimization (LogicNet Plus XE) and inventory optimization (Inventory and Product Flow Analyst) solutions just for this purpose. That is, these solutions were used to keep the supply chain strategy current and to provide optimization- and fact-based proof of the value.
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.
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.
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.
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.
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.
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."
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.
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.
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).