In the recent letter from the chairman in IBM's 2010 Annual Report, Sam Palmisano discussed business analytics and optimization as a key part of IBM's future growth strategy:
IBM spotted this emerging need early, building the
world’s leading analytics practice, with 7,800 expert
consultants, the world’s premier nonacademic
mathematics function, leading‑edge software and
offerings integrated by industry.
As a reminder of a detailed explanation and definition of analytics from an IBM team, click here.
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."
We will be speaking with ITW at SCOPE Spring in Chicago on Monday April 23rd 11-12. The title of the talk is "New Trends in Supply Chain Analytics."
Here is the abstract from the SCOPE website:
A driving force behind much of the success at ITW is the 80/20
business process. Learn how this business process was applied to supply
chain network and supply chain optimization at ITW.
Also, learn how new trends such as considering multiple objectives at
the same to gain deeper insights and learn how inventory optimization is
really about preventing lost sales, reducing late shipments, reducing
expediting, and running a better supply chain
Learn how the combination of tools and processes leads to on-going benefits
Toni Stark, Director, Distribution Operations, Illinois Tool Works Inc.
co-presented with Michael Watson, Ph.D., IBM and Adjunct Professor,
ITW is well known for their use of the 80/20 rule to focus on the important. (Click here for their write-up on this idea). It will be interesting to hear how these concepts apply to supply chain analytics. We look forward to seeing you at SCOPE.
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.
This holiday shopping season showed the importance of good inventory visibility and optimal inventory levels for retailers.
A recent report from internet Retailer reported on an Aberdeen study that showed that over half the retailers do not have good inventory visibility into their supply chain and that 30% of retailers reported out-of-stock rates higher than 7% (representing lost sales or unhappy customers). Click here to go to the article.
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.
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
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.
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.
Join IBM Optimization and Supply Chain experts on March 30, 2010 for the webcast: Building a Smarter Supply
Chain: Learn how to position your
business for recovery and growth with better supply chain
decision-making using next generation supply chain optimization. Abstract: Is your business
positioned for recovery? Are your supply chain strategies flexible
enough to manage a rapidly changing and volatile economic landscape?
Join IBM ILOG Optimization & Supply Chain experts to learn how
optimization technology supports flexible business strategies that
enable companies to reduce costs today and prepare for growth tomorrow.
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.
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.
Supply Chain authority Andrew Reese is Editor of Supply & Demand Chain Executive. He has been invited by IBM PR to attend this show as a blogger and speaker. Like all other speakers, Andrew will receive all speaker benefits including travel and board.
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.