IBM Decision Optimization
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.
MichaelWatson 270002K5FS 1,576 Views
In a recent article in Manufacturing Business Technology, the authors noted that IBM was "just as excited" about talking about the broader integration of the supply chain applications within IBM as the new functionality in LogicNet Plus XE and Plant PowerOps:
Our clients are already starting to see value from our integration into IBM as these possibilities become reality. For example, clients are seeing value from the following:
It is exciting to see our supply chain clients get much more value from our tools and services by mixing them with the tools and services from IBM. This is all a great fit with IBM's new initiative to create smarter supply chains.
This blog has often commented on the price of oil. Oil prices have a big impact on the supply chain. As oil prices change, it impacts the cost of raw materials, productions, and transportation. The change in these costs impacts the trade-offs that a firm needs to make.
For example, as the increase in oil prices drives up transportation costs, it can change where product should be made, the mode of transportation used, and the inventory strategy.
Several years ago during the big run up in oil prices, we wrote an article for The Wall Street Journal that discussed how the supply chain strategies needed to adjust to the new prices. As oil prices fell, we wrote an reminder that it was still important to analyze the impact on the supply chain. In both cases, it is important to understand the trade-offs between transportation costs, sourcing decisions, and inventory and adjust the supply chain accordingly.
As oil hit $100 a barrel this week, it is worth recalling these lessons. More firms have invested in more flexible operations, but the basic lessons remain. It is important to adjust your supply chain to fit the realities of the market.
IBM just released a new white paper: "Managing Volatility Through Smart Inventory Planning."
The white paper discusses major trends in the consumer products industry and the impact on supply chains. The paper shows how inventory optimization can help a firm deal with these trends and this is highlighted by various case studies. Here is a quote from one of the case studies showing the value of inventory optimization:
"When we went fully operational with the tool," recalls the manager, "we got a two-day improvement [in days on-hand of inventory]. From a working capital perspective, that's a $5 million savings."
We'll have more on this important paper shortly. If you would like a copy of it, please let us know.
Andrew Reese 270002Q78Q Tags:  – inventory smarter regional optimziation chains and conference atlanta planning supply 3,887 Views
At Smarter Supply Chains – Atlanta Regional Conference, Ronan O'Donovan, product manager with IBM ILOG Supply Chain Applications, spoke about "smarter" inventory and product flow optimization.
Key findings: The challenges around inventory management and product flow are not getting any less. Retail and distribution clients, for example, are requiring a product that optimizes both safety stocks and the flow of products to minimize total supply chain costs.
To juggle all the factors impacting inventory and product flow, companies must make inventory and product flow optimization a formal business process within organizations, front and center and part of the regular monthly planning process, e.g., Sales & Operations Planning (S&OP) or Sales, Inventory and Operations Planning (SI&OP). "Making up the numbers" is no longer acceptable as a planning method.
In addition, processes are moving from "strategic" to "tactical," meaning that planning is becoming an increasingly frequent exercise as companies look to be more responsive to the evolving environment. Companies need to understand, at any given moment, what's the best plan for me right now, given the current set of constraints we're facing.
Ronan discussed typical user workflows and roles for Inventory Optimization, breaking down the separate approaches used by typical Super Users (collecting/managing data), Business Analysts (running what-if scenarios, setting new inventory targets) and Manager Reviewers (reviewing exceptions/alerts, approving/overriding recommendations, tracking planned vs. actual and other KPIs, and reporting). The key to a successful process is not necessarily how each of these classes of users performs their job, but how these users interact through a consistent, closely aligned process.
Where organizations put optimization at the heart of the process, the technology tends to follow to enable that process. Note that this process will evolve and mature over time within a company, as the company learns which factors to incorporate and how best to incorporate them. Ultimately, optimization will never be an "easy button" that will make everything work automagically, but it's a necessary and critical process.
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
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.
Kurt Zetah with Dow Chemical provided this presentation. Kurt is Network Optimization leader and Mergers and Acquisitions leader for Dow's Supply Chain. Dow has 200 manufacturing sites in 38 countries, with $54 billion in sales and 46,000 employees, serving customers in 160 countries.
Dow began supply chain modeling in the 1980s, using linear modes with regard to feedstock selection and, to a limited extent, customer sourcing. They moved into production planning and distribution center planning in the 1990s using statistical modeling; into sophisticated sourcing analysis in the 2000s with mixed integer modeling; and into stochastic models today. Back in the 1980s and 1990s, the data collection was largely manual, but as they have become more integrated from a systems perspective, they have been able to reduce modeling time from months to days or even hours now. But they want to become even faster to be able to respond to rapid changes in raw material, transportation and other costs. This is in recognition of the fact that supply chain costs have become increasingly important – and increasingly recognized as important within the company.
In summary, Kurt noted that modeling is a requirement to compete today – "If you're not doing modeling, sell your stock in your company." You need to be able to model faster and more accurately, and you have to institutionalize the process to ensure success over time.
MichaelWatson 270002K5FS Tags:  sterling_tms ilog optimization transportation_analyst 3,770 Views
Finding good routes can reduce transportation costs by 5-15%.
Finding great routes can reduce costs by a further 5-10%.
These savings can add up fast.
However, finding these great routes can be difficult.
On one level, routing seems trivial. If you have 75 shipments to make, you can easily look at a map and come up with routes. If analyze the routes, you can probably make changes to reduce costs. But, how do you know if you've found good solution? How do you know if you've found a great solution?
What is not obvious at first glance is how many total possible routes exist in a routing problem. In a problem with just 75 shipments, if you allow up to 10 stops per truck, the total possible routes exceed 10 to the 100th power (10 followed by 100 zeros)! Even with today's computing power, there is no way to evaluate each of these options.
And, the problem becomes harder when you consider delivery windows, different types of trucks, the ability to do backhauls, making making multiple trips with the same vehicle, and so on.
This is where IBM's optimization expertise comes in. Both the IBM ILOG Transportation Analyst and Sterling TMS use the ILOG CPLEX Optimizer to find great routes. The ILOG CPLEX Optimizer product contains a module for Constraint Programming (CP). CP is well suited for tough scheduling and routing problems, especially routing problems with time windows. It is this optimization technology that allows to you to find great solutions.
MichaelWatson 270002K5FS Tags:  network_optimization logicnet_plus supply_chain logicnetplus ilog 3,433 Views
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.