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 1,598 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 3,972 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 3,860 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 supply_chain logicnet_plus logicnetplus ilog 3,521 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.
IBM is hosting the Smarter Commerce Global Summit in San Diego from Sept 19 to 21st. Click here for more details on the event.
This event will be very educational with deep dives into:
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.
Andrew Reese 270002Q78Q Tags:  design chain and network inventory regional smarter conference management planning – chains supply atlanta 4,441 Views
At Smarter Supply Chains – Atlanta Regional Conference, David Simchi-Levi talked about Combating Volatility through Flexibility. I talked about this in greater detail here.
One point that David raised at the outset was the increased level of volatility surrounding the supply chain. His point was that companies need to be careful in thinking about the "best practices" that they apply to managing their supply chains. In such a dynamic environment, the best practices that applied before the recession - or before oil prices spiked, or before they crashed again - are not necessarily applicable today. It's a call to action for all supply chain executives to step back and reassess their processes to see if they are still "best in class," or whether there might be benefit to adjusting to the "New Normal."
MichaelWatson 270002K5FS Tags:  logicnetplus supply_chain network_optimization ilog 7,648 Views
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.
Be sure to watch both parts. [UPDATE: Click here for the new link]
If you would like a copy of the video, please contact us.
[UPDATE-- this post was updated to reflect the link to the video]
MichaelWatson 270002K5FS Tags:  inventory_optimization cscmp inventory_analyst ilog 3,868 Views
Abbott Laboratories and IBM will speak at the upcoming CSCMP annual conference in San Diego.
Accenture-ILOG Webcast: Past the Tipping Point: Record Oil Prices Require New Supply Chain Strategies
aeortiz 2700024WMF Tags:  network design and planni... supply chain webcasts inventory optimization 2,536 Views
Accenture and ILOG will host the 4th in a series of collaborative webcasts on green logistics and sustainability issues. Previous webcasts focused on carbon footprint reduction initiatives and best practices. The November 3rd webcast will bring an additional level of complexity to the mix: fuel price. This webcast is based on the September 22, 2008 Wall Street Journal publication, Crude Calculations.
Date: Monday, November 3rd
Time: 10:00am CT
Abstract: In many respects, fuel costs are the “universal influencer” of business strategy and activity. There is no end of consequences for companies that import, export, ship or manufacture goods. Even companies that just consume indirect or MRO materials are affected, as are retailers and other direct-to-consumer entities. Further complicating the issue is fuel cost's unpredictability. There is no way to know where the top of the price-rise spectrum is or whether prices might even fall in the near or not-so-near future.
But even if we can’t know the future, companies can’t afford to do nothing. The consequences are too extreme. And the likelihood is too high that competitors will respond creatively to gain a competitive edge over those that are slow to react. Scores of supply chain functions must take action. An overview of five such functions— network strategy; sourcing and procurement; planning and forecasting; transportation and distribution – will be discussed in this webcast.
Our goal is to provide a high-level overview of how higher fuel prices affect each function, how the function must change as a result, and what specific things supply chain leaders must do now.
Bob Gosier, Senior Manager, Accenture Supply Chain Practice
Narendra Mulani, Global Managing Director, Accenture Supply Chain Management Services
David Simchi-Levi, Co-founder of LogicTools, Professor of Engineering Systems at MIT, and ILOG Chief Science Officer.
Jonathan Wright, Partner at Accenture and Global Head of Fulfillment (Based in UK)
• Crude Oil Price and Transportation Costs
• Impact on Network Strategy
• Impact on Transportation Strategy
• Impact on Supply Chain Strategies
• Impact on Consumers
ThomasDong 270002GM71 Tags:  smarter_planet analytical_decision_suppo... optimization advanced_analytics cplex opl odm_enterprise 5,252 Views
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:
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:
MichaelWatson 270002K5FS Tags:  strategic supply chain pl... supply chain optimization supply chain strategy logicnet plus network design and planni... network design 2,414 Views
In a recent conversation with AGRANA, a large sugar, starch, and fruit company based in Europe, we were reminded of the value of network design on an on-going basis.
AGRANA reports using LogicNet Plus both for strategic network design studies impacting the next 1-2 years, but also for the day-to-day issues that come up. These kind of daily studies can be done in the context of the full model or as simple stand alone models.
This daily use of network modeling helps a firm keep on top of its supply chain to continuously control and minimize costs or improve service.
AGRANA reported on the aspects of LogicNet Plus that makes all this possible:
Interestingly, this use of LogicNet Plus fits with IBM's Smarter Planet initiative: helping firms make better decisions with the data they have and providing tools that allow firms to do this faster and easier.
Ahold USA and IBM to Talk About Network Analysis with Strategic Souring, Inventory Optimizaiton, and Route Optimization
MichaelWatson 270002K5FS Tags:  network_modeling transportation_optimizati... ilog inventory_optimization 3,259 Views
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.
SC_Manager 270002HW8N Tags:  logicnet production transportation network xe plus planning modeling costs 4,197 Views
I attended the CSCMP Chicago Roundtable event at RR Donnelley last week (February 11, 2009) and heard an interesting presentation by my colleague Jay Jayaraman. He discussed a project we are working on where a manufacturer of a commodity has the choice of exchanging product with a competitor. The idea is that a company can source an order from a competitor’s location that is closer to the intended customer than its current manufacturing base. The impetus being a saving on transportation costs. The key is that both companies can benefit from the swap since they both can reduce transportation costs, and each company keeps their relationships with their customers. Of course, this scenario can only work with commodity-type products.
To take full advantage of the situation, our network modeling and production planning tool, LogicNet Plus XE, can be used to determine the best possible swaps as well as understand all the constraints that impact the results. Doing this type of analysis with Excel can lead to omissions and sub-optimization.
It’s fascinating how collaboration, even amongst “enemies”, can lead to benefits for all…
P. Louis Bourassa
Technical Account Manager
aeortiz 2700024WMF Tags:  supply chain supply chain management r... operations management 1,660 Views
Andrew Reese 270002Q78Q Tags:  chains conference regional chain supply visibility smarter – atlanta 3,588 Views
The first presentation of the day came from Karen Butner, Global Supply Chain Management Leader for the IBM Institute for Business Value, on IBM's Global Chief Supply Chain Officer Study, based on interviews with 400 some supply chain executives worldwide. Karen Butner has more than 25 years of experience in supply chain management business practices and strategies. Her concentration has been to assist clients in the high technology, retail and consumer products, electronics, and transportation logistics industries develop strategies and improvement agendas to bring significant value in transforming their global supply chain performance.
The study took about six months to get through, with conversations (hour-and-a-half interviews) with 400 supply chain leaders in about 30 different industries across 25 counties, and they spoke with a variety of different supply chain executives within the enterprise. They focused on supply chain strategy; how companies are collaborating; how agile companies are; how they manage risk; how they use technology and leverage opportunities around real-time data management. One key focus was on how effective different supply chain initiatives are.
The top challenge cited by Chief Supply Chain Officers was supply chain visibility, and where they are focusing is on real-time information transparency inside and outside the enterprise, as well as on event management and alert notification. Interestingly, the top barriers to greater visibility were "organizational silos" and people are "too busy to assist others" in collecting the data and information necessary to provide visibility.
MichaelWatson 270002K5FS Tags:  supply chain strategy supply chain planning network design supply chain optimization logicnet plus network design and planni... green logistics strategic supply chain pl... 2,033 Views
Recently, a member of Bayer’s Supply Chain Optimization team spoke on how to create a greener supply chain. It was stressed that the carbon emissions were only one part of the equation. The analysis had to include other factors such as taxes, exchange rates, oil prices, sourcing, service time, and, of course, costs.
As an example, a project in China is mentioned for the pharmaceutical products: Previously, the supply chain strategy relied on air freight. After many different scenarios were tested, Bayer found a solution with 3 DC’s that reduced lead times, reduced carbon emissions, and kept costs neutral.
Besides projects in Asia and Japan, the Bayer team has used the tool in the US and Europe.
It was stressed that all of these projects are complex and involve careful analysis of the trade-offs.
In fact, it was mentioned that “some questions you want to raise can’t be answered without a tool like LogicNet Plus.”
Please contact us if you would like more details on this case.
A new case study is available showing how Südzucker, Europe's leading supplier of sugar products with an annual revenue of approximately €7 billion, uses IBM ILOG LogicNet Plus to help meet their goals of a cost-effective and flexible supply chain:
Here is a quick summary of the case:
MichaelWatson 270002K5FS Tags:  network design and planni... strategic supply chain pl... logicnet plus network design 1,814 Views
This plant won the award for its innovative manufacturing process, its low energy consumption, but also for its "reduction in transportation and supply chain costs."
This case highlights the importance of good supply chain modeling. The right location and function of your facilities can make a significant difference to your overall strategy and to the bottom line.
Celebration Foods explains how they went about the site selection:
It is interesting to note that the studies often come up with counter-intuitive solutions and that it is important to run many scenarios to make sure you have a good and robust solution.
Andrew Reese 270002Q78Q 2,523 Views
David Simchi-Levi talked about volatility and flexibility in the supply chain, putting a definition around those terms, and trying to quantify the impact of flexibility, as a foundation for helping companies understand how they can invest in flexibility in their supply chains.
David noted the IBM ILOG supply chain applications, which include Strategic Supply Chain Design & Planning (LogicNet Plus, LNP; Inventory Analyst, IA; Product Flow Optimizer, PFO; Transportation Analyst, TA); as well as more tactical-level planning, e.g., for safety-stock setting for ERP (Inventory Planning); and Production Planning and Detailed Scheduling (Plant PowerOps, PPO).
Today's supply chain challenges are well known: global supply chains with long lead times, combined with rising and shifting customer expectations. In addition, as global manufacturing costs rise in different regions (increasing labor costs, e.g., in China by about 20% annually over the past five years versus 3% in U.S.), the optimal supply chain five years ago may longer be applicable.
Logistics costs also have been increasing as a percentage of cost of goods sold, rising 15% as a percentage of GDP in the U.S. from 2003 through 2007with rising oil costs, rail capacity pressure, truck driver shortages and security requirements. Transportation costs have increased 47 percent in the last five years, but inventory costs have also increased, by 62 percent in the same time period, e.g., due to longer supply chains (more inventory in motion and more safety stock to meet more demanding customers). David also noted that one strategy that companies have used in the face of higher transportation costs, larger shipment sizes (to take advantage of economies of scale), have had the effect of increasing inventory costs.
Risk levels have increased in the supply chain, a result of successful implementations of Lean, outsourcing and offshoring. Lean supply chains make it more difficult to meet high service levels with less inventory, while outsourcing/offshoring creates more opportunity for disruption in the supply chain. Sustainability also has become more important - less so as oil prices have declined, but that is likely to change as oil prices increase again. At the same time, the supply chain has seen unprecedented levels of volatility, e.g, as a result of commodity price volatility (e.g., high volatility in price of oil in 2008, with 39 days when the price of oil changed 5 percent or more from its previous day close).
David posited that flexibility is one of the top supply chain capabilities in which companies can invest to increase their ability to respond to all the above challenges. Flexibility is the ability to respond to change, e.g., demand volume or mix, labor cost, exchange rates. The objective is to reduce costs and reduce the amount of unsatisfied demand and improve capacity utilization, with no or little penalty on the service-level side. Flexibility can be achieved through Product Design (a focus in the high-tech industry, especially, e.g., a modular, Dell-like product architecture, standardization, postponement, substitution); Process Design (e.g., flexible work force, Lean, flexible contracts [e.g., options contracts], outsourcing, dual sourcing); or System Design (e.g., capacity redundancy, manufacturing strategy, distribution strategy).
Focusing on System Design, David looked at an example focusing on balancing transportation and manufacturing costs, coping with high forecast error and utilizing resources more effectively. The goal is to achieve all (or most of) the benefits of "full flexibility" with a small investment that provides a small level of flexibility. David ran through two case studies of flexibility.
The first case study focused on a manufacturer in the food and beverage industry. Initially, the company employed a dedicated manufacturing strategy, with each product family manufactured in one of five domestic plants, and manufacturing capacity was in place to target 90 percent line efficiency for projected demand. The company had five manufacturing plants with varying average labor costs, and eight DC locations. The company was focused around manufacturing costs, e.g., by producing high-volume product in its lowest-cost facility. To analyze the benefits of adding manufacturing flexibility to the network, the company analyzed scenarios that provided for varying degrees of manufacturing flexibility, up to full flexibility, where each plant could produce each product line, and everything in between. An analysis of plant to warehouse shipping costs showed, of course, that full flexibility produced lower transportation costs, but an analysis of the impact on total supply chain costs showed that just investing in a little more flexibility (by adding flexibility at all plants to produce two product lines) produced 80 percent of the benefits of flexibility with less impact on manufacturing costs, while avoiding the higher costs of investing in full flexibility (ability to produce all five product lines at each plant). But the company also wanted to understand the impact of potential changes in demand volume, so they considered three different scenarios based on growth for different product lines. In each case, adding the minimal level of flexibility outperformed the baseline and even "full flexibility" in terms of KPIs like demand satisfied, shortfalls, cost/unit and average plant utilization.
In further analyzing the benefits of adding a small amount of flexibility, David noted that in the above example, the full benefits of what he calls "2 flexibility" (ability to have each plant product two product lines) are possible when there is a "long chain" that connects all the plants in the company's network, such that a change up or down in demand for a given product will not cause a disruption in the company's ability to meet that demand. This example requires much more in-depth explanation that is possible here, but I hope to be able to write about this phenomenon later.
David also ran through a case study of optimizing S&OP at a bottling company operating 57 plants in the U.S. and 103 plants worldwide, driving 240,000 miles a day to meet customer demand. Implementing the flexibility described above, the company created a process that brought together sales, supply chain, marketing, manufacturing in collaborative planning process. Results: The company reduced raw materials and supplier inventory from $201 million to $195 million; saw a 2 percent decline in the growth of transport miles even as revenue grew; and added 12.3 million cases available to be sold due to reduction in warehouse out-of-stocks, adding up to the equivalent of adding 1.5 production lines without actually any investment in plant.
David also spoke about redundancy in the supply chain and the challenges and benefits of scenario analysis for optimizing a supply chain network and setting supply chain strategy. He discussed a case study involving a manufacturer of consumer packaged goods. The company had 40 manufacturing facilities, but was looking to rationalize its plants while also managing risks in its supply chain. The company looked at how many plants they could close without impacting their ability to meet demand and came up with a plan to close several plants that would result in savings of $40 million to the bottom line. However, this plan left plants very distant from customers, resulting in a higher lead times. In addition, the attendant higher levels of plant utilization left the supply chain exposed to higher levels of risk from disruptions. The challenge for the company was to build into the model scenarios that take into account different sources and levels of risk, based on the number of plants that the company ultimately would decide to maintain. David noted that the optimal solution in terms of total supply chain cost was not necessarily the optimal solution in terms of risk management. He pointed out that total supply chain cost is invariably "flat" around the optimal strategy, so the company could look at closing a fewer number of plants than the "most optimal" solution in order to mitigate risk.So, in summary, a small amount of flexibility can often provide large benefits, supply chain costs are flat around the optimal strategy, and positioning inventory effectively can make a big impact through taking advantage of risk pooling.