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.
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.
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.
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:
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
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.
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.
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.
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.
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”
This week’s Economist magazine has a special report on the
“the data deluge.”The report points out:
“According to one estimate, mankind
created 150 exabytes (billion gigabytes) of data in 2005.This year, it will create 1,2000
exabytes.Merely keeping up with this
flood, and storing the bits that might be useful, is difficult enough.Analysing it, to spot patterns and extract useful
information, is harder still.Even so,
the data deluge is already starting to transform business…”
The article notes that the retailers are one of the leaders
in amassing this data.For example:
“Wal-Mart, a retail giant, handles
more than 1m customer transactions every hour, feeding databases estimated at
more than 2.5 petabytes.”(A petabyte is
Of course, this article fits nicely within IBM’s Smarter
Planter.Smarter Planet’s big ideas are
that the world’s systems will be instrumented, interconnected, and intelligent.
In IBM, the group behind this blog works on solutions to
help firms make more intelligent decisions with this data.Often, due to the number of possible choices,
optimization-based technology is the only way to get value from the information
For example, for retailers we’ve worked with, they have
taken advantage of the data in a variety of ways:
items should be stocked at a store, how the store should be laid out, and where
the SKU’s should be on the shelf—this helps retailers increase store revenue
the warehouses and stores should best be replenished, how the workforce should
be scheduled, how products should flow through the supply chain, locating the
warehouses, and routing trucks--- this helps retailers take costs of their
In each of these cases, simply analyzing the data was not
going to be good enough to extract value from it to give the retailer a