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.
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.
More and more, managers recognize that their business needs multiple supply chains.
As an example, Supply Chain Management Review (Nov 2006) reports on a example that highlights a classic trade-off:
Victoria’s Secret has created two different supply chains for the two sorts of products it sells.Its supply chain for high-fashion items like lingerie has been designed to get products into it stores as quickly as possible to maximize sales of short-lived, high-margin goods; its supply chain for basic items like socks has been designed to products on its shelves at the lowest cost.
In this case, you can air freight one set of products and ship the other set by ocean.The high-margin, high fashion items easily absorb the extra transportation costs while the low-margin, low cost items can easily absorb the extra inventory carrying cost.These products might also flow through different distribution points within the network.
Optimization-based supply chain planning tools can help create the best design and plan for each of these supply chains.
What is interesting, though, is that managers no longer have to figure out how many supply chains they have and then come up with the right design for each one.
The advances in the planning tools now allow the managers to use optimization-based tool to help figure out how many supply chains they should have and what they should look like.This process can lead to interesting new insights into the business.
For example, you benefit from unique supply chains based on product, on different seasons, on different brands, on where the product comes from, on different regions, on different customer segments, on different channels, and so on.
Creating different supply chains can lead to significant increase in overall profit margin, increase in customer service, decrease in cost, and an overall improvement of the supply chain’s ability to meet the firm’s strategic goals.
To monitor and manage this additional complexity, more firms are relying on a tighter integration with operational data.This allows you to make adjustments in real-time. Gone are the days of looking at the design of your supply chains once every couple of years.
All of this taken together means that firms gain a competitive advantage by carefully determining their supply chains and staying on top of them.
1. You can find savings with network modeling. The team quoted that they were able to find $10M in savings just in the initial modeling. In fact, the speakers stressed the tremendous value in just building a baseline model. This allows you to uncover savings, but to also challenge preconceived ideas.
2. Sensitivity analysis is valuable. After narrowing down choices, the team did analysis on the impact of higher oil prices and carbon emissions to rank the solutions.
Bob Ferrari noted that this work can be done with remote teams:
The combined project team performed this task over three months on a
virtual basis, without the need to meet face-to-face until just before
final recommendations. This was an important reinforcement that a
virtual team process can work, with selection of both the right
players, and a single point-of-contact for each constituency.
The speakers also mentioned that through the years they were able to build various models that focused on different parts of their supply chain from distribution to manufacturing.
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:
We've recently written an educational book on network design. This book is aimed at both those who do network design projects for a living and for use in the classroom.
For those who do these studies, you will develop better intuition on how these models are solved and new ideas for modeling your supply chain. It can also be a good guide for people who are new to the discipline within your organization.
For those of you who teach, this book will introduce your students to the topic and provide them with a wide ranges of realistically sized models to work on. You can use with the IBM ILOG LogicNet Plus XE software from the academic initiative to allow your students to learn the topic with the use of commercial software.
Gartner RAS Core Research Note G00172071, Andrew White, 17 November 2009
"This research updates users on IBM’s overall supply chain management (SCM) product strategy, which has matured in terms of positioning and product management/strategy since its most recent Ilog acquisition in 2008. We highlight the finalized IBM SCM product portfolio, and highlight how this rationalized portfolio aligns with the SCM trends IBM exposed in its most recent Executive Survey, which also aligns closely with Gartner’s research."
To read the note visit: http://imagesrv.gartner.com/media-products/pdf/reprints/ibm/external/volume4/article31.pdf
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.
Correctly positioning and buffering inventory can help you create a more flexible supply chain with lower costs.
In the military, it is common practice to pay suppliers on a "cost plus" basis. Effectively, this makes all the suppliers a "make to order" location. That is, the suppliers can only make product when there is a firm order. There is no mechanism for the supplier to make product in advance, sit on safety stock, and provide faster service.
Keeping helicopters flying is not trivial. They are made up of many parts and operated in tough conditions. Many of the key parts(drive shafts, sycn shafts, blades) require many sub-components and must be made with specialized materials in a high-precision manufacturing environment.
The supply chain for these key parts can be very long (measured in many months), and it is expensive to keep enough of these items around as spare parts.
With the current system, each key part had to either be stored in inventory as safety stock (waiting to be needed) or the the military had to wait for the supply chain to produce another (creating a backlog of demand and a helicopter that was grounded). Neither alternative was great.
A better solution is to optimize the placement of strategic buffers in this supply chain. The chart below on the left shows the existing supply chain. The yellow box on the right represents the customer (the military) and a key part. The gray boxes to the left represent all the steps in the supply chain needed to make this particular part. You can see the complexity of the supply chain. In the baseline, the entire buffer is held by military, represented by the red bar.
In the optimal case, the suppliers hold buffers. These buffers are seen by the red bars. The inventory optimization identifies where and how big these buffers should be. Now, the military can keep the helicopters flying with much less money tied up in working capital (or worse, with many helicopters not being able to fly).
Of course, implementing this solution is not trivial. Contracts with the suppliers have to be re-worked to allow them to create and maintain the safety stock buffers.
As banks and financial institutions start to emerge from a prolonged financial downturn, they face a host of challenges. Disruptive forces continue to ripple through the finance industry changing the market and impacting the businesses, such as:
• New regulations • New capital requirements
• New technologies
Optimisation technologies have become key tools in making important business decisions that increase competitive advantage. Optimisation, through the use of advanced mathematics and computer science techniques, is used to assist organisations with solving their complex business problems. The models which capture trade-off between optimum resource allocation and risk minimisation are gaining increasing importance in Banking, Portfolio Construction, Asset and Liability Management, Trade Settlement and Clearing and Cash Management. Recent developments and growing applications of quadratic optimisation, stochastic optimisation and robust optimisation in these domains and the role of modelling systems and solvers will be presented and discussed.
BENEFITS OF ATTENDING:
Understand the role of optimisation in financial analytics and gain an understanding of the leading issues of financial analytics Learn about the latest thinking and practices in the domain of Portfolio Optimisation and Asset and Liability Management Learn how companies have been able to use optimisation technology to help determine how to most effectively allocate capital, balance business risks, uncover novel solutions for their customers and gain insights into their toughest challenges for maximum return with limited risk
At the 2011 annual CSCMP conference, Walmart's Greg Forbis spoke to a full session about Walmart's inbound supply chain. SupplyChainDigest reported on the talk. Here a a paragraph from their article that represents the challenge and opportunity:
"He also said that Walmart's vast transportation network, including some
6500 dedicated trucks and an amazing 56,000 trailers, covering almost
every area of the country, could reduce total transportation costs
because its network density and buying power may result in lower costs,
especially in terms of using vendor freight to reduce empty miles
travelled, or produce better consolidations. He noted, for example, that
Walmart has about 12 consolidation DCs that combine less-than-truckload
shipments from vendors into full truckload shipments to its stores. "
During the talk, Mr. Forbis mentioned the use of optimization to help with this problem.
This is a great example of how optimization can help firms. When you have an almost unlimited number choices, optimization technology helps you sort through the possibilities. This is especially true with transportation optimization. We have previously discussed how deceptively difficult routing problems are (click here and here for more information).
With Inbound logistics, the optimization is even more difficult. For example, you may need to find routes that pick up from multiple vendors and make drop-offs at multiple distribution centers. Most routing optimization focuses on outbound routes from a depot to stores. A nice advantage of IBM's Transportation Analyst is that engine is based on the Constraint Programming engine that gives you the ability to model inbound logistics and find great solutions that you otherwise would not find.
We often find that when we compare the results of an optimization run to the current plans, the optimization can find solutions that meet all the business rules and time constraints (which are not always met in the existing routes) and reduces the cost.
There's a big difference between impulse buying and purposeful buying. Most of the Retail customers we met with at NRF 2014 were focused around products designed for purposeful buying behaviors and how to create a seamless customer experience in a very fragmented omni channel world.
"Impulse" product lines are very different - they appeal to the emotional side of consumers. So, how will specialty retail brands compete effectively in an increasingly digital, e-commerce world? As automated checkout and online purchasing increase, how can these Retailers continue to exploit the emotional "buy" when products like candy, for example, are no longer in front of us as we shop? From a retailer's point of view, impulse items bring in high margins—50 percent or better on some SKUs—and have a quick turn over rate (homechannelnews.com/article/impulse-item-guide). How can they make up for this loss of revenue? Thoughts on this?
In 2008, after undergoing a grueling third-party logistics provider
(3PL) selection process, Navistar chose San Mateo, Calif.-based Menlo
Worldwide Logistics, the global supply chain management subsidiary of
Con-way Inc., to support it in improving its global logistics network,
including managing global transportation providers and regional
warehouses, planning lead times, and modeling net landed costs.
He reports that one of their goals was a 25% reduction in supply chain costs. He reports that at "the end of the partnership’s second year, we will have achieved
11-percent cost savings, out of the 25-percent goal we set for the next
When discussing the reasons Navistar selected Menlo, he mentioned their "global coverage, cross-network planning, and optimization capabilities."
This is a very interesting article discussing the challenges of building a new global supply chain from the ground up. It is also interesting that modeling net landed cost and optimization capabilities were mentioned as key factors in the transformation of the supply chain. This mirrors some other findings that leading supply chains are relying on optimization-based technology to help drive improvements.
If you’ve ever tried to build an application that business decision
makers can use, you know that having a good model of the system you want to manage
isn’t enough. And while you need the best optimization solving technology, line-of-business
managers and executives demand more. They want to see the data supporting the
decisions, they want to try what-if scenarios to validate the proposed options,
and they want planners and schedulers to collaborate across the corporate
organizational lines. And if you want to deploy your solution, you need to
satisfy a bunch of requirements and standards from your IT department.
The Design Guide addresses these issues with concrete
guidance and practical examples derived from IBM’s long experience developing
and deploying analytical decision support solutions in many organizations.
Going beyond how to formulate good models, the Guide shows you how to design
data integration, business user interfaces, client/server architectures, taking
advantage of IBM’s ODM Enterprise to streamline development. The Guide
illustrates the steps using a concrete example derived from a real-world
logistics application. Plus the Guide explores two detailed case studies, one
in manufacturing and the other from insurance.
Need to convince your management that optimization can work
for your organization? The Design Guide can give you the credibility you
An article in DCVelocity provides some great insight into how Whirlpool and Maytag combined their supply chains. Whirlpool purchased Maytag in 2006 and promised the investment community $400M in savings over the first 3 years.
According to the article, $40M of savings per year was going to come from logistics-- freight and warehousing costs. This reminds us how important it is to get these decisions right. And, in Whirlpool's case, the article reported that they were able to overachieve and hit a savings of $66M in the current year.
How they got off to a fast start:
One of the first steps was to determine what inventory was on hand in
both operations so that Whirlpool could determine what to do with it.
The company acquired ILOG's LogicNet Plus suite of network design and
planning software so it would have a tool in place that
could import and crunch data once the deal was finalized (regulations
did not permit the managers to have access to Maytag-specific data until
the acquisition closed).
"When the deal was completed on March 31, 2006, we were in the
starting blocks ready to go. We had our tools in place and people in
place, and we had our own data. We were then prepared to bring in the
The network optimization with LogicNet Plus allowed Whirlpool to determine which distribution centers to close, which new sites should be built, and what the local cross dock network should look like.
We have seen this type of result many times over the years. When a firm grows through an acquisition, having a high-quality network optimization tool allows it develop solid plans for the new network. This creates a foundation for additional improvements and helps a company meet the goals of the acquisition.
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.
While doing some research for an upcoming white paper, I came across a nice article from Nov 2009 from Dan Gilmore at the SupplyChainDigest, "The Real Value of (Less) Inventory." A key line from the article is:
reducing your level of inventories relative to sales and sales growth
can have a dramatic impact on a company’s share price."
The article quotes research and cases to back up this claim. This certainly fits with what our customers are telling us-- they are seeing significant inventory savings through inventory optimization.
The word "permanent" is a great choice of words. Inventory optimization technology, by itself, will not lead to a permanent reduction. As we noted in an earlier post, we have developed an inventory planning playbook to help firms make the right inventory decisions with the right cadence and considering important strategic factors.
This releases enhances LogicNet Plus XE's leadership position in the supply chain network design market. It includes many cutting edge and innovate features that will allow you run new types of optimization , and gain deeper analytical insight. Highlights of the new release include:
Ability to run the optimization with multiple user-defined objectives and automatically build detailed trade-off curves. Traditional network design limits you to one objective. This innovative feature allows you to make better supply chain decisions by weighing multiple objectives.
Detailed Landed Cost reporting and analysis
Lane visualization for easy model building, visual understanding of the structure of your supply chain, and detailed analysis of the output
New interface for improved ease-of-use
Center of Gravity modelling
Stochastic inventory planning
This is the third major release of LogicNet Plus XE since 2009 and shows IBM's continued investment in the product.
The website highlights why the concepts from the book are important. For example, Jim Champy, the coauthor of Reengineering the Corporation says:
"Companies today are faced with an increasing number of choices in
operational and supply chain strategies. This book goes beyond just
showing how to make the right operational decisions. It makes the
critical link between operations and providing more value to customers.
It's a must read for anyone involved in operations and strategy."
Also, a key concept discussed is the fact that many companies offer different value propositions through different channels or brands. These different value propositions imply that the company may have different supply chains. However, the company cannot simply operate their supply chains separately. They need to take advantage of synergies where it makes sense. Click on the S&OP video in this link for more information
The article shows how the techniques are being applied in a non-discrete manufacturing environment.
We are seeing a similar trend.
However, many firms struggle with translating the lean system developed by Toyota for their environments. This can be especially difficult in long supply chains or in a environment where there is inherent batch or tank processes.
The excellent book by Hopp and Spearmen, Factory Physics, helps translate Toyota's system to other environments by defining lean as:
A manufacturing supply chain is lean if it accomplishes its fundamental objective with minimal buffering costs.
They define three types of buffers a firm can have: inventory, time, or capacity. In short, if you can make your product with a minimum of inventory, short cycle times, and excess capacity, you are getting closer to lean.
We are finding that optimization can be a great way to minimize these buffers and evaluate the trade-offs between them.
With inventory optimization, firms realize that the may not be able to eliminate inventory completely or that they have removed it from the wrong location. In these cases, optimizing inventory is important to achieving a lean operation.
In process manufacturing plants, these firms are relying on high-end optimization to better schedule the plants. They realize that they cannot get around batch and tank production, set-ups, cleaning operations, and other realities in the process industry. Optimization-based scheduling allows them to reduce manufacturing costs, improve inventory, and achieve lean operations.
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."
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.
Customer expectations have grown for not only what they are buying
and how they are buying it, but how it is fulfilled and when they will
receive it. They want to buy online and pick up in the store, or have it
shipped direct to their home or office -- and they don't want to wait.
This shift has supply chain professionals moving beyond transactional
enterprise systems and operational rules of thumb to a more advanced
value chain. The value chain takes advantage of all this new granular
customer data to enable organizations to respond to demand variability
at the point of consumption -- connecting the supply chain directly to
customer demand, orchestrating seamlessly between trading partners and
suppliers. This is an inherently multi-enterprise, cross-functional
collaborative process that requires bringing together a vast amount of
data from disparate sources to make the right strategic, tactical and
In this webinar, we will discuss the strategic requirement to creating a successful value chain:
Real time analytics to balance supply and demand and optimize inventory levels and postponement strategies.
Visibility to address disruptions and detect patterns of supply chain behavior
B2B connectivity to optimize the inbound and outbound flow of materials
Evolution of the trading partner eco-system to reduce errors and speed fulfillment
Adrienne Selko Online Editor IndustryWeek
Adrienne Selko manages the editorial content of IndustryWeek's
award-winning Web site. Before joining the staff in 2004, Selko was
managing editor of corporate publications at a large regional financial
institution. She was also an editor for the U.S. based publication of a
medical manufacturing company. Prior to that she ran a public relations
and marketing company that published a best-selling healthcare book.
Selko received a bachelor's of business administration from the
University of Michigan.
Richard Douglass Worldwide Industry Director, Manufacturing IBM
Richard Douglass is the Worldwide Industry Director, Manufacturing,
Smarter Commerce within the software group of IBM, where he is
responsible for industry marketing and key industry account support. He
has over twenty-five years of experience in supply chain management
consulting and solutions development in a variety of manufacturing
sectors ranging from chemicals to high tech. Prior to joining,
Douglass had similar responsibilities at Sterling Commerce and
webMethods, integration and application software providers, and prior to
that he was an associate partner at Accenture, a global consulting
He received a bachelor's in computer science from Michigan State
University and an MBA from the Kellogg Graduate School of Management at
Northwestern University. He is certified as a Six Sigma Black Belt. He
is a senior fellow at the University of Maryland.
A new case study is available highlighting how Johnson Controls uses LogicNet Plus to model and improve their closed-loop battery supply chain.
The following is a quote from Johnson Control's Supply Chain Network Strategy Manager, Chad Montgomery:
"I’m using LNP XE every week to perform modeling on a variety of projects from small capacity analysis/capital investment decisions to quarterly financial forecasting and annual budgeting for capacity utilization, plant manufacturing, and shipping territories. LNP XE has allowed us to create clear pictures of our network, starting with a best-case utopia state and then quantifying the impact of each constraint. This clarity can reveal hidden savings opportunities as well as gives complete insight into the main drivers of our supply chain”
Join our monthly IBM ILOG Supply Chain Management Virtual User Group (VUG) sessions.
These 1-hour meetings are
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.
May 4th 2001: Topic: "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 to highlight the value from
business analytics such as network and inventory optimization. We will discuss
how 3M Corporation is organized to deploy this capability.
Join our LinkedIn Community to receive updates, more detailed information, and Dial-up/Web Meeting access. Schedule-at-a-Glance: May 4th -
Wednesday June 1st -
Wednesday August 2nd -
Tuesday September 1st
- Thursday October 7th -
Friday November 2nd
- Wednesday December 2nd - Friday