This event will be very educational with deep dives into:
supply chain management
targeted and personalized marketing
mobile and social commerce
analytics and insight
There is a strong track for those interested in the supply chain. But, IBM is strong in other new areas that eventually (if not already) will impact the supply chain. For example, companies need to react to the proliferation of data on customers, the consumers greater user of smart phones, and the rising importance of social media. These topics will all eventually impact managers in the supply chain. This event will help you understand and get out in front of these trends.
If you are planning on attending, let us know. We have a team of folks from the ILOG supply chain group who will be there. We would like to hear from you.
The article does a great job of explaining how firms need to embed mathematical optimization deep into their organizations to really take advantage of their investment in IT and data.
"One of his [Steve Shashihara] most interesting arguments is that a great deal of the effort
spent on information gathering and analysis is wasted — or, at least,
used sub-optimally — when it’s used to feed business intelligence
systems that produce reports that ultimately wind up with being fed into
spreadsheets and PowerPoint slides. Managers then sit around in a
conference room listening to presentations and debating what the data
means and what decisions should be made about it — when, in many cases,
good software could make the decision itself."
The article mentions that IBM and IBM's ILOG CPLEX have the ability to address the need for more automated optimization. This article confirms the value we've seen in Optimization:
Lean techniques started with Toyota's manufacturing system and have moved into many other types of operations over the last two decades.
Often, though, it is difficult to take the concepts of 'Lean' and apply them to operations that do not look much like Toyota. Often, these efforts will just focus on waste reduction. However, a careful study of the fundamentals of lean reveals the importance of creating optimal (and minimal) buffers to protect against variability. This is where optimization can come in. Optimization can often reveal new strategies for minimizing the buffers you have in your supply chain. For example, the article quotes:
"Of course, another great way to reduce inventory at the warehouse is if the product just skips the warehouse entirely. That requires determining which products should touch every warehouse, which should bypass the warehouses, and which should be cross-docked."
IBM just released a nice video introducing the concepts of mathematical optimization to business. This is a great video to help you convince others in your organization of the value of optimization. Click here to view the video.
The new "hours of service" rules were discussed In a recent Wall Street Journal article. The article mentioned that the hours a truck can drive in a day is proposed to be dropped from 11 to 10. The final decision is expected to be made in October.
This represents a potential 9% decrease in the number of miles that can be covered in a day by a truck. This obviously has a large impact for the supply chain. Some orders that could be met within a day will now be two days. You may have to shorten routes or change modes. And, this will drive up your transportation costs.
To mitigate the increase in transportation cost, you should re-evaluate the structure of your supply chain to make sure you have the right number and location of your warehouses, to make sure you are making products in the right locations, and to make sure your routes and modes are correct. By re-optimizing your supply chain, you may be able to offset much of the cost of the new rules.
Although the new rules are not yet in place, it is a good idea to get ahead of the situation so you are ready if they are enacted. Even if the rules are not enacted, the supply chain optimization scenario may yield other savings.
The new supply chain news aggregation site OpRules, reported on on an article about Australia's new carbon tax. According to the article,
"Prime Minister Julia Gillard yesterday announced a $23 dollar per tonne
price on carbon emissions to be paid by about 500 of the country’s
biggest polluters from July 1, 2012."
Supply chain optimization can help firms help minimize the impact of this tax and reduce carbon. For example, with this tax, it may make sense to change the number of warehouse locations, manufacture or procure products from different locations, develop different routes for the trucks, switch transportation modes, and evaluate different inventory policies.
By re-analyzing the supply chain to include this new tax, firms should be able to find strategies that dramatically decrease the total cost of the carbon tax by developing new strategies in other areas of the supply chain.
The Supply Chain Digest's editorial staff recently wrote an editorial on the "Out of Stock" problem faced by Consumer Goods companies. They noted:
fact, inventory levels in consumer goods manufacturers stayed flat
throughout most of the 2000s, and out-of-stock levels at the shelf have
also been resistant to improvement. A well-publicized 2007 study by Dr. Thomas Gruen of the University of Colorado and Dr. Daniel Corsten
of the IE Business School Madrid, based on funding from Procter &
Gamble, estimated that manufacturers lose something close to $100
billion in sales annually due to out-of-stocks at the shelf.
Solving the out-of-stock challenge can
therefore pay big financial dividends - especially for the companies
that can reach new levels of in-stock performance first, before
The editorial discusses areas where IBM is helping firms solve this problem by better optimizing inventory.
"In fact, according to Remzi Ural, a supply chain lead
in IBM's global consumer packaged goods practice, one beverage company
IBM recently worked with was able to increase its sales by 12.3 million
cases by significantly reducing its out of stocks, in this case
throughout its distribution network that served local stores "
This was based on a videocast we did with SCDigest.
Joseph Shaw from Ahold USA and Alex Scott from IBM will speak at the 2011 Material Handling and Logistics Conference. The conference is Sept 18-21 in Park City Utah.
Ahold is an international retailing group based in the Netherlands. Ahold had revenues of 29.5B Euros in 2010. Ahold USA is a wholly owned subsidiary of Ahold. Ahold USA operates Stop & Shop, Giant, and Giant Martin's stores as well as the on-line grocer Peapods.
The title of the talk is "Beyond the Traditional Network Analysis."
"So you are challenged with managing a large portfolio of products and a
complex set of vendors, customers and distribution locations. How do
you make sense of this all and streamline your supply chain? This
session takes you beyond the pin-on-a-map network analysis and examines
factors such as sourcing strategies, inventory optimization, route
planning and more. We will also review a grocery case study that
involved the analysis of sourcing effectiveness, evaluation of DC
investment opportunities, and relocation of legacy facilities to get the
most out of their supply chain network.
Click here for the link to the conference tracks and a full bio of each speaker. This talk is in Track 3, Session 2 at 10:15 AM on Monday.
We have a new release of IBM ILOG Transportation Analyst.
This is a major release for this product. It has a new interface, improved run time performance, additional constraints and settings, and enhanced optimization capabilities. The product embeds IBM ILOG CPLEX Optimizer. Specifically, the optimization engine takes advantage of our powerful constraint programming engine which is well suited to these types of problems. All of this allows you to more easily solve larger problems and address other routing problems.
IBM ILOG Transportation Analyst is a strategic tool that allows you to determine the best routes, size your fleet, determine best backhauls, determine how to best use hubs, and make mode selection choices between private fleet, commercial carriers, multit-stop routes, and LTL.
This product is a nice complement to IBM ILOG LogicNet Plus XE. When designing a network, it is often important to understand the implications to routes, fleet sizes, hubs, and modes. The product also complements Sterling TMS by providing a strategic complement for doing what-if analysis.
At the May 2011 Manufacturing Leadership Summit, The Dow Chemical Co. won a Supply Network Mastery award for their global supply chain optimization initiatives.
The award sited a few examples of the type of work they did:
"One Pacific-area team used a Network Optimization Work Process to
evaluate tank usage. Optimizing tank usage for multiple products cut
costs, improved service levels, and reduced GHG emissions; the latter
has become a key performance metric in the Network Optimization Work
Process. Each network project looks not only at cost and customer
service, but also provides key carbon footprint data to reveal
opportunities for GHG reduction.
After the April 2009 acquisition of Rohm and Haas, D&MSC Work
Processes helped teams capitalize on synergy opportunities and optimize
the company’s Europe warehouse network. The evaluation identified
savings through consolidation of shipments to warehouses and reductions
in freight and warehousing costs. "
The award mentioned that these projects and others saved the firm $5 million during 2009-2010.
The article mentions that LogicNet Plus was part of the toolkit. For the a link to the full article, click here.
Consumer Products companies (and others) face pressure to reduce costs, have customers demanding better availability, and have an ever-expanding global supply chain. In this environment, managing inventory is difficult. However, by optimizing inventory by determining the best buffers, the location of the push/pull boundaries, and the correct amount of inventory and safety stock at each location for each SKU.
To address these needs, IBM has pulled together a solution to help firms optimize inventory on an on-going basis. This solution pulls together IBM's optimization technology (IBM ILOG Inventory and Product Flow Analyst), our expertise in inventory optimization, our expertise in integration to ERP systems, and other capabilities such as SPSS's predictive analytics. Click here for a paper on this solution.
The benefits of inventory optimization can be significant:
Studies suggest that reducing inventory can increase share price.
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.