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.
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.
MichaelWatson 270002K5FS Tags:  supply_chain_strategy supply_chain ilog flexibility 2,332 Visits
In a previous post, we mentioned David Simchi-Levi's new book, Operations Rules. We've received a lot of questions about the book and the concepts.
Now, the official website for the book is up and running. Click here for the link.
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
Great New Book by David Simchi-Levi-- Operations Rules: Delivering Customer Value Through Flexible Operations
David Simchi-Levi has a new book coming out in August, 2010, Operations Rules: Delivering Customer Value through Flexible Operations. See the Fall Announcements from MIT Press page 13.
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.
Headlines: "BP Didn't Plan for Major Oili Spill." Do You Have a Contingency Plan for Your Supply Chain?
The coverage of the oil spill in the gulf is starting to focus on BP's lack of a plan in the event of major oil spill.
This reminds us in Supply Chain about the importance of contingency plans. Do you have a back up plan in case something happens in your supply chain? For example, a warehouse, plant, or supplier is no longer available, a port closes, or a border shuts down.
Although problems with the supply chain are hopefully not as globally bad as a major oil spill, it is still important to you and your organization. A supply chain disruption can cause significant loss of revenue, loss of market share, decreased shareholder value, and lost customers. A supply chain disruption is not pleasant for the managers within the firm.
And, it is no longer acceptable to say that you couldn't have foreseen the problem. With modeling tools like LogicNet Plus, leading companies are building and maintaining models of their supply chain. Well in advance, these firms are using the models to develop contingency plans for a wide variety of problems. When something happens, a plan is in place and can quickly be adjusted to meet the needs of the situation. The ease-of-use, robustness, and ability to integrate LogicNet Plus make all this possible.
In one case we are familiar with, a fire at a neighboring plant shut down production. The company was able to quickly determine the best course of action.
This week, SupplyChainDigest ran an article about IBM's supply chain. This article noted:
Somewhat quietly, IBM is building a formidable portfolio of supply chain software solutions that has the potential to shake up the existing market.
Also, the article noted IBM's existing solutions in network optimization, inventory optimization, and factory scheduling and that "IBM has been very aggressive in promoting these solutions, such as by adapting them for new opportunities into the retail sector."
MichaelWatson 270002K5FS Tags:  supply_chain logicnetplus ilog inventory_analyst india 2,146 Visits
A recent article in India Infoline Limited discussed AFL's purchase of IBM ILOG LogicNet Plus and IBM ILOG Inventory Analyst for network and inventory optimization.
AFL is a third party logistics provider in India.
Here is what they said about their selection:
Mr. Ravinder Bajaj, Head – Solutions and SCM Strategy at AFL’s Logistics Division said: “AFL chose IBM’s iLOG software for several reasons, chief among them – robustness, post-purchase support and a clever user interface that makes data modelling both simple and secure. This unique combination of AFL’s domain expertise in logistics and iLOG’s superior design and modelling capabilities, have helped us unlock significant value in our clients’ supply chain metrics.”
Earlier this year SupplyChainDigest ran a piece titled "CVS's Kevin Smith on Supply Chain Management."
Here is an key expert from that article:
This quote reminded us of the value of continually evaluating your supply chain and being able to prove the value to upper management. We have seen many firms using our network optimization (LogicNet Plus XE) and inventory optimization (Inventory and Product Flow Analyst) solutions just for this purpose. That is, these solutions were used to keep the supply chain strategy current and to provide optimization- and fact-based proof of the value.
On Wed, May 26 at 11:30 ET/8:30 PT, we will be hosting a 30 minute webinar on supply chain optimization for retailers.
Click here to sign up for the event.
This webinar will touch on network optimization, transportation optimization, flow path optimization, and advanced replenishment.
MichaelWatson 270002K5FS Tags:  supply_chain logicnetplus optimization_supply_chain... analytics ilog optimization 2,329 Visits
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
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.