IBM recently came out with its annual "Next Five in Five" report highlighting five innovation predictions for the next five years. One article that picked up the story pointed out:
IBM, the world's largest provider of computer services, is one of the
few big corporations investing in long-range research projects and
invested $5.8 billion in research and development last year, accounting
for 6.1% of revenue, according to the company's financials.
This investment in research helps benefit our supply chain clients. For example, IBM recently came out with a new study and white paper, "New Rules for a New Decade: A Vision for Smarter Supply Chain Management." SupplyChainDigest picked up the story and provides a nice summary in addition to the IBM material. The study found that supply chain visionaries have significantly better financial returns by more quickly predicting demand and optimizing and analyzing their supply chain to take advantage of this in closer to real-time. The chart below summarizes the key capabilities of different types of supply chain organization. Of course, there are significant advantages to getting your supply chain to the "Planners" level.
It is increasingly important to have the analytics
that enable better decision-making, says Douglass. But an area where
supply chain managers need to improve is scenario planning— assessing
different alternatives based on risks.
“It’s like having different playbooks with different response profiles for different contingencies,” Douglass explains.
Overall, IBM is investing heavily in supply chain thought leadership to help our clients run better supply chains.
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.
Previously, Indeval, like most CSDs around the world, operated a
settlement system that required banks to hold liquidity of billions of
dollars while securities were being settled. Linking the delivery of
securities to their corresponding payment requires depositors to have
adequate financial resources available to settle their trades. Financial
institutions may have to borrow if they do not have sufficient funds to
settle stock and debt trades.
At the heart of
Indeval's Dali securities settlement system, the IBM ILOG CPLEX
Optimizers match thousands of transactions simultaneously, so that only
net amounts of securities and cash need to be transferred among the
participating financial institutions. This tremendously reduces the
amount of cash and securities the institutions need to have on hand to
settle the transactions.
Indeval won the 2010 Edelman Award from INFORMS (Institute for Operations Research and the Management Sciences) for this work.
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.
Having the ability to continually analyze and optimize your supply chain allows to you keep costs low, respond to customer requirements, and better support the overall business strategy. Firms using LogicNet Plus XE on an ongoing basis have been able to realize these benefits.
A good example of this is from Armstrong World Industries, "a global leader in the design and manufacture of floors, ceilings and
cabinets with a focus on innovation, design and environmental
sustainability." Here is a link to their case study.
The case study sites the ability to make better decisions as a key benefit of this type of on-going analytics:
Some business units within Armstrong do not make a change or investment
without consulting with the central modeling team. Sometimes the
modeling results confirm the preconceived notions and sometimes the
results cause people to change their mind. In all cases, the process
makes the managers in the business think more rigorously about the
problem and allows for better solutions.
We also have a white paper on this topic as well if you would like additional information.
As data becomes more available, firms are revisiting their S&OP process to add more analytics to the process. In fact, the lack of analytics and optimization is often a reason that firms do not get the full value from their S&OP process. That is, without optimization-based technology, the S&OP process can become just a demand planning exercise with minimal analysis of the operations and supply.
By combining the Cognos S&OP solution with integration to LogicNet Plus XE, firms can now create optimized plans. That is, Cognos provides the descriptive analytics, an S&OP dashboard, the detailed reporting, the platform for demand consensus, the ability to standardize data from multiple sources to create a single S&OP view, and the ability to tie it back to financial systems. Cognos becomes the enterprise level platform for S&OP. LogicNet Plus XE then receives data from Cognos, allows the planner to run multiple scenarios, and feed the operations plan back into Cognos.
The operational plan considers capacity of the facilities, starting inventory positions, the demand plan from the S&OP process, and alternatives for meeting demand. Using this capability, it creates integrity in the process by coming up with operational plans that match the demand plans.
We have a short video available for additional information.
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."
The virtual users group is 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 Q&A.
Oct 28, 2010 Session (2:00 - 3:00 CST): Reporting and Mapping.
Nov 30, 2010 Session (12:00 - 1:00 CST): Transportation and Baseline Modeling
Dec 15, 2010 Session (2:00 - 3:00 CST): Efficient Model Set-up and Maintenance
Please contact us with any questions about the events or suggestions for future topics.
A SupplyChainDigest article from earlier this year noted that "IBM is building a formidable portfolio of supply chain software solutions that has the potential to shake up the existing market."
Now that IBM has completed the Sterling Commerce acquisition, IBM has much more to offer to the ILOG Supply Chain customers.
The IBM ILOG supply chain group provides supply chain planning capability (LogicNet Plus XE), inventory planning (Inventory and Product Flow Analyst), strategic transportation planning (Transportation Analyst), and production planning and scheduling (Plant PowerOps).
Sterling provides a strong set of supply chain execution and visibility products. These products include:
Transportation Management System (TMS), offered as a Software as a Service (Saas)
Warehouse Management System (WMS)
Supply Chain Visibility
Yard Management System (YMS)
The supply chain products from Sterling and ILOG complement each other and allow our customers to make better plans and efficiently execute against those plans.
Last week, IBM hosted another Connect to Win event for business partners at it's northern California IBM Innovation Center. The event focused on business analytics and featured IBM Distinguished Engineer Jeff Jonas, a dynamic and highly sought after speaker. Among his many accomplishments, he is known for developing the technology used by the Las Vegas gaming industry featured in the book "Bringing Down the House", the recent movie "21", and numerous documentaries on the Discovery Channel, Learning Channel and the Travel Channel.
Following the keynote by Jeff Jonas, IBM hosted a panel discussion. Some 30+ partners came to learn how to leverage analytics in their offerings, and naturally a wide spectrum of analytics sophistication was represented, generating a vibrant discussion on everything from Smarter Planet to Artificial Intelligence to Decision Management.
The panel was made up of:
Jeff Jonas, IBM Distinguished Engineer, Chief Scientist, IBM Entity Analytics Group
Jeff Kreulen, Senior Manager, Senior Technical Staff Member, Services Oriented Technologies, IBM Almaden Research Center
Thomas Dong, Senior Product Marketing Manager, ILOG Optimization and Analytical Decision Support Solutions
Daniel Mannisto, CEO, Applied Analytix (IBM Business Partner)
During the panel discussion I had the opportunity to first share IBM's vision for business analytics, using an adaptation from Tom Davenport's book "Competing on Analytics", to explain why, how and where IBM has invested $14B since 2005 in business analytics. Several partners thanked me afterwards for presenting this visual, as it provided them with a blueprint for how they might evolve their own analytics capabilities.
In fact, this gave me an opportunity to define a new software category for many - Advanced Analytics, which applies statistical and mathematical techniques to provide forward-looking capabilities, beyond the insight commonly extracted from historical data and information. It can be viewed as a subset of Business Analytics, and provides an interesting convergence opportunity, between the IT-based "analytics" world, and this emerging world previously reserved for specialists in statistics and Operations Research-related disciplines (Management Science, Industrial Engineering, Financial Engineering, Systems Engineering, Applied Mathematics, etc.). As the business world evolves its analytics agenda beyond business intelligence and performance management capabilities, the desire to not only look back in time, but forward in time as well, is driving awareness for Advanced Analytics - and creating many opportunities for SPSS and ILOG Optimization at the point of business impact.
To learn more about Advanced Analytics for a Smarter Planet, start here:
In a recent webcast, IBM discussed the latest enhancements to IBM ILOG CPLEX Optimization Studio 12.2, from streamlined packaging and licensing, to major performance improvements.
CPLEX Optimization Studio now completely supports the rapid development and deployment of both mathematical programming and constraint programming models from a powerful IDE, based on the Optimization Programming Language (OPL), programmatic APIs, or other 3rd party modeling interfaces via supported connectors (Matlab, Microsoft Excel, etc.).
At the conclusion of the webcast, attendees were asked to identify the feature that excites them most from the latest release. Here are their Top 3:
IBM has once again re-asserted its leadership in mathematical optimization, with a remarkable 2.7x performance improvement on the most challenging optimization problems, mixed integer programs taking at least 1000 seconds. The latest release strengthens IBM ILOG CPLEX Optimizer as the most trusted and widely-deployed solver. Streamlined packaging, and removal of license key enforcement makes it even easier to choose CPLEX. What are your top 3 new features? To view the recorded webcast, please follow this link:
We recently had a chance to revisit a large model built prior to 2009 using LogicNet Plus XE (LNP XE) 6.0. Since machines change over time, we re-ran this model in LNP XE 6.0 an existing machine.
We then ran the same model on the same machines using LNP XE 7.0 (which was released in June 2009), and it ran 15% faster.
Using LNP XE 7.1 (released in June 2010), it ran 14% faster. Overall, run time decreased by 27% since LNP XE 6.0.
Of course, with these types of models, run times will vary from model to model. However, IBM's continued investment in the underlying performance allows LNP XE customers to solve larger problems and tackle different business issues.
Fidelitone Logistics recently announced that they are using LogicNet Plus XE to help analyze their customer's supply chains. They state that they can help remove 15-20% of costs:
"Based on customer order data, we were able to use ILOG to run several
scenarios and analyze the geographic impact multiple locations would
have on service and cost," explained Chuck Perry,
director of customer solutions for Fidelitone. "This fact-based
analysis shifted the client's assumptions and created a 15-20 percent
reduction in cost for them. Additionally, the fact-based nature of the
analysis enables us to be more competitive with pricing as our
confidence level in the analysis has proven true with each application
of the technology."
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
Manufacturers are offering more and more products by changing the "sizes, brands, colors, fabrics and flavors."
But, "instead of improving profitability, these tactics often lead to
bloated product portfolios that raise a company's costs, reduce
supply-chain efficiency, confuse consumers and lead to shortages of
The article offers tips for reducing the number of SKUs. But, this problem is difficult to tackle-- it involves many different groups and decisions can impact the top line and ability to compete for shelf space. At IBM, our advanced analytics solutions can add to the analysis.
Cognos helps with the Business Intelligence, allowing you to understand the demand and sales price of each SKU in each market. SPSS allows to determine which SKU's actually sell together and estimate what would happen to overall demand if SKU's were reduced. That is, if you eliminate an SKU, what will be the likely uptick in the demand of the remaining products. ILOG can help determine the true landed cost, supply chain efficiencies, and safety stock impact of a reduced SKU count.
Combined, these technologies could help you make the correct decisions on how many SKU's to eliminate and which new varieties to the market.
If you’ve paid much
attention lately, the topic of “smart supply chains” is currently in vogue. But what is a smart
supply chain, exactly? And are you trying to build one at your
company?The idea of smart or
intelligent supply chains has been around for some time – more on that in just a
bit. However, part (but by no means all) of the recent reanimated discussion
about smart supply chains has come from the efforts of IBM, which has made
“smarter” supply chains one of its key marketing messages.
report IBM released last year summarizing surveys and interviews with hundreds
of senior supply chain executives (promoted in many venues since then, including
SCDigest), IBM said that “To deal effectively with risk and meet your business
objectives, we believe supply chains must become a lot smarter,” and called on
Chief Supply Chain Officers to start building to that new vision right
now. Read the full story online at SCDigest.com.
Optimizing inventory is about determining the appropriate reorder points and order sizes so you have the right amount of inventory for every SKU at every location.
The graph to the left shows the results of an inventory study. The SKU's are along the x-axis and the y-axis shows the needed change in inventory.
The SKU's with the red bars show that you should hold less inventory for these items. That is, for these items, you will reduce the amount of inventory. This frees up cash and reduces your cost to finance and hold that inventory.
However, the SKU's with the green bars show items where you should be holding more inventory. What this tells you is that for these items, you are currently either missing sales, providing poor service, or going through extraordinary means to fill the orders (shipping out of territory, expediting, and so on). Of course, these extra costs may not matter to you-- but, our experience has shown that these extra costs or lost sales easily swamp the extra cost of the inventory. And, it is important that you explicitly decide whether you want to hold the right amount of inventory or pay the costs in lost sales, poor service, out of territory shipments, or expediting.
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.