IBM Decision Optimization
From archive: February 2012 X
We published a guest commentary in Logistics Viewpoints titled Safety Stock Helps Buffer Against Variability in the Supply Chain.
The commentary discusses how inventory optimization is critical business process that allows a firm to reduce out of stocks, late shipments (and penalties), reduce expediting, and reduce inventory (and free up cash).
IBM recently launched a national television ad on Smarter Commerce. It is definitely worth a quick view.
For supply chain professionals, what is interesting is this ever growing importance of the supply chain in meeting your firm's strategy. As the ad points out, once new trends are spotted, you need to make sure your production and distribution capabilities are flexible and robust enough to meet the new demand.
This is where supply chain optimization can help. It helps by making sure you can re-optimize production plans, distribution plans, and that you have strategically placed inventory within your system. Often, this means that you have positioned key raw material components so you have maximum flexibility (click here for a white paper on the role of inventory optimization).
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:
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.