Archive for the ‘Ted Schaefer’ Category

This article written by Alan Kosansky and Ted Schaefer originally appeared in Industry Week.

“Network structure, which determines 75%-80% of total supply chain costs, offers the biggest opportunity to reduce those expenditures.”

A recent study of supply chain activities indicated that as much as 80% of total supply chain costs are determined by the network in place and not by the decisions the supply chain team makes on a daily basis within that network. The cause can be attributed to infrastructure, which significantly determines the types of decisions and degrees of freedom that are available to supply chain decision makers. As a result, many companies have literally stumbled into pitfalls associated with warehouses, distribution centers and sources of supply (manufacturing, supplier locations, etc.) because they lacked thoughtful design.

There is help available for vigilant executives in the form of 10 guidelines to implement necessary cost saving measures. All are applicable whether the company is pursuing a growth strategy or struggling with underutilized assets in a challenging economy. Keeping these guidelines at the forefront of consideration can create opportunities to ease pressures on margin and the bottom line.

1.  Network structure, which determines 75%- 80% of total supply chain costs, offers the biggest opportunity to reduce those expenditures.

That’s because when manufacturing and distribution assets are in place, and major transportation contracts are negotiated, actions to improve operations and efficiencies in the supply chain are limited. The time to discover the biggest supply chain improvement opportunities is during assessment or reassessment of the infrastructure in place; e.g. manufacturing capability, raw material sourcing, major transportation lanes, distribution facilities and delivery to customers.

2. Optimize supply chain infrastructure to realize maximal cost savings.

A company’s existing supply chain infrastructure is a primary cause of daily disruptions and short-term challenges. Those companies that experience the smoothest and most profitable operations are the ones who routinely re-evaluate both operations and infrastructure. Those who reevaluate as a matter of procedure tend to become supply chain and profitability leaders. A recurring evaluation of infrastructure should be considered a necessity.

3. Understand the changes that can be impacted.

Change is inevitable, and the response to it will determine a company’s profitability. First assure that the processes and tools are in place to recognize the changes occurring in the supply chain. Then identify and analyze potential courses of actions and communicate the execution plan.

4. Consider technological analysis to make the supply chain decisions.

Spreadsheet analysis can evaluate a potential change in a business plan or supply/demand balance and perhaps project the impact of a given course of action. However when decisions involve multiple products made across multiple manufacturing sites, shipping and distribution point issues while serving thousands of customers, companies need sophisticated tools to effectively consider all the options to assure maximization of every supply chain infrastructure.

5. Modern infrastructure planning requires a collaborative effort.

Good supply chain operations happen because the people in charge of different aspects (sales, manufacturing, logistics, procurement and finance) are effectively communicating by:

• Providing the critical data necessary to make the best overall decisions.
• Understanding how each critical decision \impacts them.
• Informing each department of every decision and the steps they need to implement.

6. The planning process needs to include many different scenarios to ensure a robust solution.

Even with collaboration across all of the stakeholders, the supply chain infrastructure design process depends on forecasts of the future that will not all prove to be accurate; e.g. customer demand, competitors’ actions, cost of raw materials and transportation. Those who recognize the uncertainty of the data that drives their business planning can use supply chain tools to explore different possible futures and evaluate a course of action. That way they can confidently make decisions that will perform well across a wide range of possible futures and position themselves for a positive return.

7. Consider hybrid solutions to ensure low-cost, high level customer service.

Simplified assumptions are quite common during evaluation and analysis of complex supply chain operations. These may cause managers to overlook opportunities that are combinations or hybrids. For example, instead of sourcing 100% of a raw material from a low-cost country, perhaps optimal customer service at lower costs can be achieved by sourcing 80% to the low-cost provider and 20% to a higher cost and more reliable alternate supplier. Another example is demand variation by day of the week, which may warrant different operations on different days. Hybrid solutions are frequently solutions for optimal mix of customer service and cost, however they are often difficult to identify and evaluate.

8. Models and analysis mean nothing without implementation.

A good supply chain infrastructure planning process begins with solid analysis and evaluation of various scenarios to identify an optimal course of action. However, it is not complete without implementation planning, which must address the cultural and organizational issues that too often prevent companies from achieving the gains that have been projected. If there is resistance within the organization to change, it may be necessary to stage the implementation in increments to gain credibility before tackling the more strategic approach.

9. Optimized supply chains minimize inefficiencies.

A good supply chain infrastructure planning process goes beyond elimination of waste to analysis of benefits and tradeoffs among the different drivers of sustainability in the supply chain. This by definition means that you are creating a greener and more sustainable operation. One example is analysis of tradeoffs between profit and other sustainability measures (for example CO₂emissions). Using tools to analyze the total impact of different courses of action can optimize decision making to meet the overall objectives.

10. The answer is in the data.

Assure the accuracy of the data, and then present it to the right people (See #5).

Roadmap for the Future

Supply and logistic executives recognize the importance of developing new and improved ways to understand and use the volumes of data to help them find and utilize the best approach. It is incumbent upon them to ensure that each aspect of the operation is fully aligned to business strategy and goals, which is the purpose of these guidelines. They should be considered a roadmap combining sound business management practices with the newest technologies and tools as a path to success.

Alan Kosansky, Ph.D., is president and Ted Schaefer is director of logistics and supply chain services of Profit Point Inc.. Profit Point, based in North Brookfield, Mass., is a provider of supply chain optimization systems providing such services as infrastructure and supply chain planning, scheduling, distribution and warehouse utilization improvement.

The summer issue of Manufacturing Today includes an article authored by Ted Schaefer and Alan Kosansky entitled Face Complexity – Making Sound Business Decisions.

“With every passing year, the amount and variety of information available to make business decisions continues its exponential growth. As a result, business leaders have an opportunity to exploit the possibilities inherent in this rich, but complex, stream of information. Alternatively, they can continue with the status quo, using only their good business sense and intuition and thereby risk being left in the dust by competitors. Top-tier companies have learned to harness the available data with powerful decision support tools to make fast, robust trade-offs across many competing priorities and business constraints.”

Read the complete article here: Face Complexity – Making Sound Business Decisions

When you slice up the supply-chain into its different components, one of the highest areas of expense, and an area that many companies struggle to comprehend and manage, is transportation.  Why is it, that for many otherwise sophisticated companies, no one within the organization is held accountable to know what they spend on freight, where they spend it, why they spend it and how they can change it?

A recent transportation survey conducted by Profit Point shows 75% of our survey respondents continue to struggle with the trade-off between adding carriers to reduce costs, and limiting the total number of carriers so they can be effectively managed for safety and service.  Probably the most surprising finding for me was that one out of every four respondents was unable to confirm whether or not their most recent improvement projects in the transportation arena had any impact.  Wow! One quarter of transportation managers can’t measure whether their efforts made a difference.  In this uncertain economic environment where every penny counts, I think we should expect more from ourselves.

Another find – only 30% of respondents had been out in the market with a bid over the previous 12 months.   At a time where shipping volume is picking up and carriers are becoming more aggressive with pricing, it seems we should be very close to the market to make sure we’re paying the right amount for our freight.  With less than a third of shippers out in the market with a bid over the last year, how can we be sure that the price increases being proposed by carriers are reasonable?

Transportation continues to be a significant portion of the total supply chain cost, therefore for many companies, the single most significant area to focus cost reduction attention.  Have we lost our vision?  Is it time for a new pair of glasses?  Our survey seems to suggest it.  If you have been anointed as the Czar of transportation for your company, then you need to be in touch with the market and confident that the changes you implement are having a meaningful impact on the bottom line.

You can download the report by clicking the link below:

Download the
Transportation 2011 Survey Report

A good friend of mine, who works for a large employer in her city, recently told me that her department’s budget, along with every other department budget that was classified as “Administration” in the ubiquitous SAP system, had to be cut by a large and specific percentage.

It didn’t matter that the “Administration” label was not uniformly applied across her organization and that some departments that were so labeled performed functions very similar to other departments that were not stuck with that label.  It didn’t matter what services each department provided, or how efficiently they provided them, they just had to cut the budget and they had to hit the number.  Incredibly, it didn’t matter that her group was one of the few “Administration” groups that actually generated revenue; in her case three times their total annual budget spend.

Unfortunately, hers is not the first story like this that I have heard.

There is no doubt that many corporations, organizations, governments and households have been hit hard by the recent economic downturn.  Each of these groups has been forced to make some difficult decisions.  So what do I have against across-the-board (ATB) budget cuts?  Basically, I think it has to be the worst way to reduce costs in an organization, and here’s why.

Let’s take a look at something that is important and familiar to all of us; the family budget.  Sadly, many families have been forced to drastically reduce spending as a result of a lay-off or furlough over the past two years.  In those cases, an ATB cost-cutting strategy just doesn’t work.  Try telling the bank that you’ve had to cut your monthly mortgage payments by 15%.  I doubt that they will be impressed when you tell them that you’ve had to do the same with your property taxes, insurance premiums, electricity and water payments, as well.  You might get lucky and be able to renegotiate your mortgage and you might get lucky if your state provides utilities assistance for people who have recently lost their jobs, but most tax assessors and insurance companies will not be particularly sympathetic.

But my guess is that you’d probably take a very different type of approach to cost-cutting in your household.  You’d probably take a hard look at all of the money that you’re spending over a month or a quarter.  You might first examine your spending to see if you could conserve on the amount you consume or if there were ways to get the same goods and services in a cheaper manner.  If that didn’t reduce your spending enough, you’d probably divide the remaining spending into different categories.   There are many different ways to categorize your expenses, but they’ll probably come down to something like, 1) Essential; 2) Non-essential, but painful to cut; 3) Non-essential and easier to cut.  If you’re lucky, you will be able to cut enough of your spending by eliminating or reducing your expenses in the non-essential categories.  If not, you might be forced to re-examine what really is “Essential.”  For example, your mortgage payment is essential, as long as you plan to stay in your house, but if the situation calls for it, you can reduce your costs by moving into a smaller home or apartment.  Not a fun choice, but it could be the right thing to do in certain situations.

Looking back on the family budget example, what did we do?  First, we looked for opportunities to conserve and less expensive ways to purchase the same goods and services.  Next, we prioritized our spending so we could make good decisions.  To find less expensive ways to purchase the same goods and services and to prioritize the spending means that we needed to 1) understand what we were getting for the money we were spending and 2) understand what would happen when we stopped spending that money.  After prioritizing our spending we made trade-offs by deciding what we could live without.  Some of the trade-offs may have been no-brainers, but some may have been very difficult.

I would argue that this is the same process that should occur in any organization that needs to reduce its spending.  It amazes me how a manager can walk into a large organization and mandate a large cut in the budget for each and every department (as they are defined in the accounting system, but that’s a different blog) without understanding where, how and why the money is spent.  It would be laughable if the results weren’t so sad.

ATB budget cuts penalize your best managers.  These are the managers that run a lean operation, who have taken the initiative to drive out all of the waste and improve productivity.  They are already doing the job you’ve asked them to do with the fewest resources possible, but they are being treated in the same manner as the manager who is either not as effective, or who has become jaded by past ATB cuts, so that he/she keeps some “rainy day” resources in the budget for just such “emergencies.”  (… and people wonder why their best managers seem to leave after these types of budget cuts, even when their positions are not eliminated.)

Let’s not forget the knock-on effect of penalizing your best managers.  The best managers often assemble the best teams to do the work.  If one or more members of a lean, highly productive, well-functioning team is forced out in an ATB cut, the rest of the team is forced to pick up the additional work of the departing team members.  This extra work, on top of an already full workload, either forces the quality of the work to suffer, or reduces the total output of the team; that is, if the rest of the team elects to stay in an organization that doesn’t value efficiency.

ATB budget cuts often fail to achieve their savings targets or result in so much “slash and burn” damage to the organization that “add-backs” must occur after the blood-letting so the organization can survive.  It continues to amaze me that these managers have the time to perform an initial ATB cut, followed by another one or by an “add back” program; but don’t have the time to do it right the first time.

ATB cuts suggest that the value of the work performed under each of the budgets is equal to the value of the work performed in all other budgets.  I have seen a lot of different organizations over my career and I don’t think I’ve ever observed this to be the case.  Take my friend’s case: her group makes money, while others spend it.  Is a cost cut that forces a reduction in revenue equal to a cost cut that has no impact on revenue?  Probably not.

So, what’s the answer?  Clearly, many organizations are forced to radically reduce costs just to survive.  I think it goes back to our home budget example: 1) know what you’re spending; 2) understand what you get for it, 3) find ways to get the same or similar things for less money, and 4) make the hard choices about what you can do without.

In the end, my experience has been that managers who drive ATB cost reductions are incapable/unwilling to understand their business processes and organizations sufficiently; lack the imagination or skills to reengineer their business processes; or lack the courage to make the hard choices about what their organization will do and what it won’t do in the future.

To all those top level managers who have instituted ATB cuts, or for those who are planning to do so: Don’t do it! Think before you act, and save your company the added burden of bad management.

I’m a picture guy.  In our kind of work, we have to be able to take a lot of data and make sense out of the process or processes that generated it.  I used to work with a fellow named, Bill, who has a PhD in Operations Research, and is probably one of the smartest people I’ve ever met in my life.  Bill is a guy who can look at six or seven big tables of numbers and then say something like, “… and the answer is 7.563.”  He was usually right.  I don’t have that talent to create the linkages among lots of different types of information in my head to come up with a conclusion like that.  That’s why I like pictures.

Recently, one of my colleagues and I were visiting a manufacturing plant to assess their production scheduling process.  The client invited us to visit the plant because they knew they had a problem.  As we followed the scheduler through his day, we began to understand the root causes of the problem.  So how did I choose to communicate what we’d found to the client?  You guessed it; I drew a picture.

When the plant manager first opened the file containing the flowchart of their existing process, she told me she only needed to see that it took me three letter-sized pages to document to the process to know that the process was much too complex and cumbersome to be fixed with a couple of “quick hits.”  Why is it that she knew without studying the details that we needed a full redesign to fix this process?

I think many of us are just built that way.  I know there is a lot of clinical and academic research that shows how we human beings use our sense of sight as a first preference for observing the world, and that there are specific parts of our brains that are able to detect visual patterns or the lack thereof.  However, I don’t think we need to see the results of that research to know why the phrase, “a picture is worth a thousand words,” is such an enduring statement.  It rings true with all of us.

That’s why I like a software product called Tableau.  It is marketed as a visual analysis tool and I think it does its job quite well.  Although I don’t claim to be an expert user, I have found it quite useful when I need to understand what’s going on in a large dataset.  Let me illustrate using an example from a recent transportation analysis that we did for one of our clients.

Our client had grown by acquisition and managed its transportation in a very de-centralized manner.  Each of the sites contracted individually with their own set of carriers, using their own set of criteria for selecting and then awarding business to the carriers.  Profit Point was called in to help the client understand the cost-savings opportunities that would result from a more centralized approach to carrier contracting and management.

Our first priority was to find out what was going on at all of the different sites so we developed a database from the client’s freight payment records to do it.  Now, picture this (pun intended).  We now have over 63,000 individual shipment records to analyze and we needed to do it in a way that told a story that we could understand and that we could then communicate to the client.  The first thing we did was look at the spend by plant and by carrier.  The spend by plant was more of a prioritization issue, to understand which of the plants had the highest freight spend, but the spend by carrier became the first part of our story as you can see in the two pictures below.

This second chart was a very powerful image to help the client quickly see that the number of carriers being employed was out of control.  You don’t even need to be able to read the name of the carrier on the Y-axis to know that there are too many carriers in this picture.  Many of these carriers had only a single load all year long, but were still carried in the system.

We also wanted to show the client the significant different in pricing policies across their carrier base.  The following slides show how we used some more of Tableau’s functionality to make our point.

By plotting cost vs. distance for all of the shipments, we were able to see the general correlation of cost with distance that we expected, but we also saw a number of outliers that we wanted to better understand.

We then highlighted a group of very high-cost shipments and kept only those points to see what we might find out.

Using a simple stacked bar chart, it was very apparent that carrier “C-g,” the red bar in the chart at left, was the main player in this group.  Once “C-g” was identified, we were able to demonstrate that their cost was always greater than the average cost for shipments with distances greater than 200 miles and by as much as 50-66% for shipments with distances greater than 1000 miles.

Again, these pictures allowed us to find one of the smoking guns inside this mass of data.  Suffice it to say that we found many other opportunities through similar visual analysis.

Because of these pictures, and others like them, it was an easy sell.  Using a tool that makes it easy to use the built-in “intelligence of our eyeballs,” we were able to develop a convincing call to action for our client, who went out to the market with a targeted freight bid and reduced their transportation spend dramatically.

As technology continues to penetrate more and more aspects of business and our everyday lives, it makes more and more data available for us to turn into useful information.  But it’s only useful information when we can put it into a form that we understand and can communicate it to others.  That’s why I’m a picture guy.

To learn more about Profit Point’s transportation services, call (866) 347-1130 or contact us here.

Profit Point’s Director of Supply Chain Services Recognized as a Thought-Leader within the Supply Chain Industry

North Brookfield, MA (PRWEB) February 24, 2010

Profit Point, the leading supply chain optimization company, announced that its Director of Supply Chain Services, Ted Schaefer, has been named a 2010 Supply & Demand Chain Executive “Provider Pro to Know.” Supply & Demand Chain Executive Magazine, the executive’s user manual for successful supply and demand chain transformation, this week announced the tenth annual listing of Pros to Know in the Supply Chain Industry.

“This year’s Provider Pros to Know have shown themselves to be thought-leaders in the Supply Chain industry,” said Andrew K. Reese, editor of Supply & Demand Chain Executive. “Highlighting the learnings that the Provider Pros to Know have taken out of the Great Recession provides our readers with a wealth of best practices that they can apply in their own supply chains, as well as insights into how leading organizations are positioning themselves for competitive advantage in the Great Recovery ahead.”

The Supply & Demand Chain Executive Provider Pros to Know is a listing of individuals from a software firm or service provider, consultancy, or analyst or research firm who have personally helped clients address the challenges of the recession and prepare for the recovery ahead.

“It is an honor to be recognized by Supply & Demand Chain Executive as a Pro to Know,” said Schaefer. “However, this award represents a company-wide effort, which includes a team of experienced and pragmatic consultants, as well as a technology development group that builds practical tools to solve complex supply chain problems. In the end, our reward comes from helping our client become the hero within their organization’s supply chain.”

Profit Point’s supply chain optimization services provide clients with clear, actionable guidance that accounts for the many what-if scenarios facing their businesses in these uncertain economic times.  By optimizing the supply chain network design, Profit Point’s clients are able to recoup millions of dollars in annual operating costs.

To learn more about Profit Point’s supply chain consultants, visit www.profitpt.com.

About Profit Point:
Profit Point Inc. was founded in 1995 and is now a global leader in supply chain optimization.  The company’s team of supply chain consultants includes industry leaders in the fields infrastructure planning, green operations, supply chain planning, distribution, scheduling, transportation, warehouse improvement and business optimization.  Profit Point’s has combined software and service solutions that have been successfully applied across a breadth of industries and by a diverse set of companies, including Rohm and Haas, Dole Foods, Logitech and Toyota.

About Supply & Demand Chain Executive:
Supply & Demand Chain Executive is the executive’s user manual for successful supply and demand chain transformation, utilizing hard-hitting analysis, viewpoints and unbiased case studies to steer executives and supply management professionals through the complicated, yet critical, world of supply and demand chain enablement to gain competitive advantage. On the Web at www.SDCExec.com.

Below is a video interview with Ted Schaefer, Profit Point’s Director of Supply Chain Services, discussing supply chain optimization including cost reduction and supply chain sustainability issues for greener decisions with Xpress Optimization Suite.

To learn more about our supply chain network design services, contact us here.

In this video interview with CSCMP’s Supply Chain Quarterly, Ted Schaefer, Supply Chain Practice Leader at Profit Point, offers practical advice on how to make supply chains both “green” and profitable.

Watch the video interview to learn more about the ways leading companies are cutting costs and emissions:

To learn more about Profit Point’s Supply Chain Services, please contact us.

“Companies are increasing their local supply capabilities while reducing the costs and risks of highly centralized, offshore production and procurement strategies.“

This month’s issue of Supply & Demand Chain Executive features an informative article entitled The Future of Network Planning. The article, which was co-authored by Profit Point’s President, Dr. Alan Kosansky, and the firm’s Director of Supply Chain Services, Ted Schaefer, looks at the emerging trend towards a more “local” supply chains.

You can read the complete article here.

To learn more about Profit Point’s Global Supply Chain Design services, please contact us.

This month’s issue of Manufacturing Today features an informative article entitled You Can Go Green. The article, which was co-authored by Profit Point’s President, Dr. Alan Kosansky, and the firm’s Director of Supply Chain Services, Ted Schaefer, reviews the trade-offs and consequences of improving financial performance of the supply chain footprint, while also reducing the environmental impact.

You can read the complete article here.

To learn more about Profit Point’s Supply Chain Optimization services, please contact us.

Posted with permission from Manufacturing Today.

This month’s issue of Supply & Demand Chain Executive features an informative article entitled Understanding the Four Pillars of Supply Chain Technology. The article, which was co-authored by Profit Point’s SC Planning Practice Leader, Ted Schaefer, and the firm’s President, Dr. Alan Kosansky, lays out “What you need to know about the information technology that drives your supply chain – and ensures that your supply chain drives profitability”.

You can read the Complete article here.

If you would like to learn more about our Supply Chain Optimization services, please contact us.

This month’s cover story in the CSCMP’s Supply Chain Quarterly magazine feature’s an excellent article written by Profit Point’s Green Optimization Practice Leader, Ted Schaefer, and the firm’s President, Dr. Alan Kosansky.

The article, Can you be green and profitable?, deals with two competing, yet critical issues that face supply chain managers across the globe. As the authors point out, “profitability and sustainability don’t have to be mutually exclusive. By considering environmental issues when setting financial objectives for a supply chain network analysis, companies can successfully balance the trade-offs between them.”

You can read the complete article here.

If you would like to learn more about our Green Supply Chain Optimization services please contact us.

Dr. Alan Kosansky, Profit Point’s President, and Ted Schaefer, the company’s Infrastructure Planning Practice Leader, are featured in this month’s issue of Outsourced Logistics Magazine.

The article, titled Reconnecting With Your Network, reviews the assumptions that motivated the recent shift towards offshoring and the global market changes that have occurred since.

The rush to reduce costs in manufacturing and procurement fueled a surge in outsourcing and offshoring over the last decade that has almost taken on a life of its own. While “low cost” manufacturing has proven a compelling factor, new evidence supports a more detailed understanding of a products total delivered cost.

Read the complete article here.

To learn more about how Profit Point’s supply chain consultants can help improve your supply chain network and infrastructure, contact us here:

(866) 347-1130 or
(435) 487-9141

Send us an Email

The Better Process Podcast, an industry show that discusses lean manufacturing news, today featured Ted Schaefer, Profit Point’s Director of Logistics and Supply Chain Services. The show is hosted by Ken Rayment, a manufacturing engineer and Six Sigma Black Belt.

The interview covered a range of topics addressing the challenges that small and mid-size manufacturing firms are facing today, including rising energy costs and increasing competition overseas. The show also highlighted several manufacturing paradigm shifts such as rising wages in China and India and greening supply chains, which are causing manufacturers to reconsider various aspects of their production and distribution processes.

The discussion included a number of recommendations that manufacturers ought to consider, including approaches toward making quantitative trade-offs and the application of optimization techniques to find the lowest total cost for manufacturing.

Listen to the interview here

To learn more about how Profit Point’s supply chain consultants can help optimize your supply chain, contact us here:

(866) 347-1130 or
(435) 487-9141

Send us an Email

Adding Sustainability into the Equation

Hardly a day goes by anymore when we don’t see sustainability issues making headlines in our newspapers, magazines or on TV. Terms like, “global warming”, “greenhouse gases”, “watershed impact” and “energy reduction” are all becoming more important in both the news media and in the supply chains of large and small companies around the world. The US EPA’s Smartway Transport Partnership, the EU’s “Climate action and renewable energy package” and the UN’s “Water for Life Decade” are but three of the many programs that are already underway or are under consideration by major government bodies around the world. Clearly, the case for improved sustainability has been made and will be a major driver of change in the coming years.

So, how do you, as a supply chain manager, integrate your company’s sustainability goals into your supply chain without burdening it with unnecessary costs or adding additional steps that slow it down or impact customer service? Is it possible that you can implement changes that both improve sustainability and your profits at the same time? I’ll try to answer both of those questions in this article.

Integrating Sustainability Goals into Your Supply Chain

Green Optimization is Profit Point’s next generation of supply chain design. Here are 7 steps we can take to integrate your sustainability goals into your supply chain:

1. “Sustainability” is a term that is used very broadly throughout industry, regulatory agencies, communities, and the news media. We need to determine what, precisely, we are trying to accomplish with respect to sustainability. Are we trying to reduce our impact on the watersheds in which we operate? Are we trying to reduce packaging waste? Are we involved in a regional plan to cut certain types of emissions or reduce peak energy consumption? Are we trying to reduce our carbon dioxide (CO2) footprint? And, for any of these questions, is there a certain targeted reduction that we have in mind? Without answers to these questions, it is very difficult to analyze your alternatives and develop a plan to meet your goals.

2. We need to determine the boundaries of the supply chain we are trying to improve. Are we looking at our entire global supply chain, or are focusing on our distribution operations in a single region of the world? Are we bounding our analysis within assets and processes that are totally controlled by our company, or are we including our suppliers and/or customers in the analysis? Are we trying to achieve our sustainability goals within our existing supply chain infrastructure, or do we need to factor in potential expansions or contractions of the supply chain?

3. Once we have unambiguously defined our goal and have clear boundaries around the supply chain we must improve, we need to collect and understand the information that is available to analyze and model our supply chain. This will be information will include things like production capacity, plant operating costs, grams of CO2 produced per kg of finished goods, transportation costs, and product pricing. We may want to include the sources of electricity used by our manufacturing facilities or raw material suppliers to favor those sites using renewable sources of electricity over those that use coal-based electricity. Likewise, we may want to include our transportation suppliers so that we favor carriers with more fuel-efficient fleets. This step is usually the most time-consuming step in the process but is critical to the generation and implementation of the changes you will make to meet your goals.

4. With this collection of information, we need to model the supply chain to generate options that both meet our sustainability goals and maximize our profitability. In this step, the “art and science” of green optimization comes to bear. It is here that we may need to make trade-offs between sustainability goals and profitability or cost goals. For example, we may be able to make a very significant reduction in our CO2 footprint with a very slight increase in cost or reduce peak energy consumption by carrying more inventory. Where these trade-offs can be accurately quantified, the “science” is used. However, where the sustainability improvements cannot be quantified, then we use the “art” to bracket the value and the cost of the improvement.

5. Now that we have selected the top options, we need to discuss them with the key stakeholders and decision-makers to get buy-in for a single option so that a successful implementation can follow. This discussion is especially important when future-based assumptions have been made in the analysis. For example, if we’ve assumed a 5% growth in demand and assumed the price of crude at $85/bbl to choose the best solution, will our choice still be the best one if our demand only grows by 2% and the price of crude moves to $100/bbl? If there is a lot of uncertainty in these key parameters, it is important that all stakeholders have a good understanding of the risks associated with each of the options presented. In fact, it may well be time for a more robust type of optimization analysis, but that will be the subject of a future blog article.

6. With all stakeholders on board, it is time to implement our new plan to achieve our sustainability goals. In addition to the communication, selling and training/education facets of our change management plan, we need to include a measurement system ensure we are getting the improvements we anticipated and to check for unintended consequences of our change. This measurement system will also directly feed the last step in this process…

7. … which is to periodically recheck our assumptions and refine our analysis and plan as external events like new customers or unanticipated costs present themselves, or as we find that a key assumption does not hold true for our sustainability gains.

Can Sustainability and Profitability Go Hand in Hand?

As in many broad-based business questions, it depends. Many companies are finding that their search for sustainability is also leading to reductions in cost, particularly in the area of greenhouse gas reduction. In these companies, the addition of the carbon footprint to the optimization equation further strengthens the case to improve transportation efficiency or improve production planning and scheduling to produce only what is needed by a customer and only when it’s needed.

In other companies, for example those that are looking to reduce watershed impact, they may find that a small increase in cost will result in a very large reduction in watershed impact. Although this may show up as a short term “hit” to the P&L, it can be a large source of goodwill that will translate into greater customer loyalty for years to come. It is important to remember that from our neighborhoods to national governments and international organizations like the UN, we all receive a “license to operate,” both from the regulatory and the public opinion perspective. Our customers want to know what we’re doing about sustainability and so do our communities and governments. We need to be able to show them tangible results.
In the end, adding sustainability into your supply ch
ain goals is simply another tradeoff in an existing decision making process based on tradeoffs. However, considering sustainability from the beginning of the process allows you to influence your corporate culture and processes to be more responsive to an ever growing set of business objectives.

If you’re interested in learning more about Supply Chain Sustainability, please contact us or take a visit our website at ProfitPt.com.

This article was written by Ted Schaefer, Director of Logistics and Supply Chain Services at Profit Point.

You’re patting yourself on the back. You’ve sorted through the Marine Shipping chaos. In the face of volatile Marine Transportation rates, you just negotiated great prices to transport your North American produced bulk liquid via tank containers to ten Pacific region countries. The contracts are signed and locked in for the next year, holding costs to a known level. A month later you discover there may be a better way. Rather than transport your bulk liquid separately to each of your ten Pacific region customers, you can send all the product on a parcel tanker to a terminal in Singapore, drum it, and ship the drums from Singapore to each of your customers. And you can do this at considerable savings without a reduction in customer service. You looked at so many options, why didn’t you consider this one?

How do you make sure your business is aiming before it fires? The business process of supply chain network analysis and design will help you ensure that you are using the best modes of transportation, the best routes, and the right mix of intermediate assets (e.g. storage, inventory, etc.), to get your products where they need to be to meet your business goals. And the icing on the cake is that it is a relatively easy and cost effective process.

So how does it work? Here is a proven process to design a supply chain network that best meets your business objectives.

1) Clearly define your objectives. No logistics manager is likely to improve all aspects of their logistic and distribution network all at once. The most critical step of the network analysis and design process is to identify your primary objectives. A partial list of critical decisions you might consider is:

• What level of customer service does my market demand?
• What modes of transportation should be used to balance cost vs customer service objectives?
• Which warehouses should supply product to which customers?
• How many warehouses do I need and where should they be located?
• Where should inventory be stored and how much inventory should I be carrying of each product?
• Which manufacturing plants should be making product for which customers/warehouses?
• What routes should I be using to get product from source to destination?
• Are there opportunities for pooling resources that have been overlooked?

Identify your objectives as those decisions that are most important to the bottom line and those that you can do something about.

2) Gather supporting data. In order to make intelligent decisions, you need solid data to support those decisions. This step is usually the most time consuming part of the process. The good news is that the data is available and reusable. Most likely it exists in your new ERP or legacy system. Typical data elements include: demand by product and container type, transportation rates, transportation lead times, warehousing costs (both fixed and variable costs), and inventory costs. If your objectives include determining the manufacturing source of products, you will also need data like manufacturing and raw material costs.

3) Model your supply chain network. Today’s technology can help you make better decisions as there are many vendors offering supply chain network optimization tools. Alternatively, you can cost efficiently configure your own. Choose wisely, as all software is not created equal. Make sure the software you select fully addresses the decisions you need to make and can represent your unique business and logistics network. Typical model components include capacity limitations, customer service requirements, lead times by mode, operating capabilities and the cost of different options.

4) Analyze your supply chain network. There is no silver bullet. Using supply chain optimization tools to make better decisions for your business requires good old-fashioned analysis. Relying on people to leverage the benefits of technology is the path to success. A good supply chain analyst will be both an expert about your business and an expert with the supporting technology. They will need to review many “what if” scenarios with the business management to finalize the supply chain network design.

5) Implement and refine. The supply chain network analysis and design process is not a static process. Successful ideas are implemented and cost savings are realized. And then things change: a large new customer is added at a new location, more production capacity is added, demand takes a nosedive, or raw material prices swing dramatically. Thus, like all good planning processes, the supply chain network analysis and design process must be on going. This process should be revisited regularly (annually/quarterly,) and/or when big things happen within the business.

How do you measure the success of this business process? Firstly, it must generate bottom line savings in your supply chain operations. Secondly, the business process must embed itself firmly in the corporate culture. Treating supply chain analysis as a one-time effort limits your business from fully reaping the fruits of your labor.

“Although we have achieved cost savings between 4% and 11% of our total logistics costs in our network designs, the biggest value that we’ve seen from this type of analysis is a common understanding of the delivery chain among Manufacturing, Marketing, Sales, Logistics, and Planning. This common understanding of cost and customer service trade-offs results from the more complete “picture” of the network that emerges from this analysis and the ability to churn out “what-if” analysis to cover most credible business scenarios. It is this understanding and the ability to quickly understand and exploit changes in the market that is the enduring value of a continuing network analysis process”, says Ted Schaefer, Global Logistics Strategy & Design Manager at the Rohm and Haas Company.

Those businesses that integrate the supply chain network analysis and design process into their corporate culture will reap the benefits of efficient and focused logistics operations year after year. With a process like this in place you can be assured that you aim before you fire.

Dr. Alan Kosansky received his Doctorate in Applied Mathematics from The Johns Hopkins University in 1991. He is the co-founder and president of Profit Point Inc. He has taught at Villanova University and has shared his expertise at many national conferences. Dr. Kosansky has pioneered the application of advanced analytic techniques to transportation procurement, dynamic scheduling, supply chain management and financial optimization. His methods have repeatedly helped manufacturers to reduce their transportation, manufacturing, and inventory costs, and businesses to realize higher profits.

Ted Schaefer is the Global Logistics Strategy & Design Manager at the Rohm and Haas Company. He has been with Rohm and Haas for 18 years, spending the last 12 years in the operation or redesign of various segments of the Company’s Supply Chains. He has done network analysis and designs for the Rohm and Haas Monomers Business in North America, Europe, and Asia. He is a member of the Council of Logistics Management and APICS.

To learn more about how Profit Point can help you get the most out of your Supply Chain Infrastructure Planning, call us at (866) 347-1130 or send us an email.