When working with our clients we try to understand the reasons why they decided to use an outside consultant. I surveyed several of our clients to understand their thinking on this topic and the content of this blog entry should largely be credited to them.

While there are a number of reasons for engaging an outside consultant, those reasons fall into three broad categories which are

1) Resource capability

2) Resource availability

3) Training / Partnership

Resource Capability

In planning a project a key question to ask is “What skillsets are required to accomplish the work?” It may not be cost effective to maintain certain skillsets in-house if those skillsets

1) are not part of the core mission of your company and / or

2) are readily available at a reasonable cost on the outside.

Resource capability, though, can be thought of in broader terms than just expertise. An outside consultant can provide

1) a fresh perspective

2) objectivity

3) knowledge of best-in-class practices

4) political cover

In these kinds of situations, engaging outside resources makes eminent sense.

Resource Availability

Once you have settled on the skillsets required to accomplish the work, if those skillsets are not available in-house then obviously you’ll need to engage outside resources. But if they are available in-house you’ll need to determine if those in-house resources have enough capacity to accomplish the work within the required time frame.

If the resources needed are not available over the time frame required then an option is to make a permanent hire but there may not be enough time to do a proper search and after you hire someone presumably for the long term.

By engaging an outside consultant you can almost always get that resource working on your project sooner and will have that resource engaged for a limited time for a known cost up front (assuming fixed pricing).

Training / Partnership

Some of our customers want to have capable and available resources to do the work in house but do not currently. In those cases, an outside resource can help you build the capability in house via a partnership of training and / or mentoring. Here the clear end goal is to develop the long term in house resources to continue the work.

So whether it is to complement the capabilities of your organization supplement existing capacity or train and mentor new in house skills, consider how outside resources might help you meet your objectives.

Sales and operations planning (S&OP) is an integrated business management process that enables a company to continually balance and manage the supply chain supply and demand to achieve its strategic and tactical business objectives. More and more business leaders are relying on S&OP to align and improve decision making across the disparate parts of their organization. And, many companies are still adopting and improving the techniques and tools that they use to improve S&OP.

So this year, we conducted a survey of supply chain and S&OP decision makers to learn more about their challenges, concerns and expectation for 2012. Business leaders from a variety of companies and industries were polled. Here’s what we learned:

• Many companies lack the metrics needed to capture the benefits from S&OP
• Scenario and sensitivity analysis is the tool of choice for S&OP planners who understand that sales forecasts are imperfect
• More companies are beginning to collaborate with suppliers and customers to improve S&OP
• For many companies, point-of-sale (POS) data may be the key to effective sales and operations planning

To read the complete report, including our conclusions, click the link below:

Download the S&OP Survey

To learn more about Profit Point’s S&OP services and S&OP software, call (866) 347-1130 or contact us here.

Change is hard.

Collapsed Souffle

In the businesses that I help, change comes for several reasons. It may be thrust upon the business from the outside, a change in the competitive landscape for instance, or a new regulation.   It may come from some innovative source within the company, looking for cost savings to increase profitability of productivity, or a new process or product with increased productivity. Change can come from the top down, or from the bottom up. Change can come in a directed way, as part of a larger program, or organically as part of a larger cultural shift.  Change can come that makes your work easier, or harder, and may even eliminate a portion (or all) of the job that you were doing. Change can come to increase the bottom line or the top line. But primarily change comes to continue the adaptation of the company to the business environment.  Change is the response to the Darwinian selector for businesses.  Adapt or decline. Change is necessary.  It is clear to me from my experience that businesses need to change to stay relevant.

This may seem trite or trivial, but accepting that change is not only inevitable, but that it is good, is the shift in attitude that separates the best companies (and best employees) from the others.

So, you say, I see the need to change, it is not the change itself that is so difficult, but rather the way that it is inflicted upon us that makes it hard.  So, why does it have to be so hard?  Good question.

Effective managers know that change is necessary but hard. They are wary of making changes, and rightly so.  Most change projects fail. People generally just don’t like it.  Netflix is a great example.  Recently, Netflix separated their streaming movie service from their DVD rental business. After what I am sure must have been careful planning, they announced the change, and formed Quikster, the DVD rental site, and the response from the customer base was awful. As you likely know, Netflix, faced with the terrible reception from their customer base and stockholders, reversed their decision to separate streaming from DVDs. What was likely planned as a very important change, failed dead. Dead, dead, dead. Change can be risky too.

If change is necessary, but hard and risky… how can you tame this unruly beast?

The secret of change is that it relies on three things: People, Process, and Technology. I name them in the order in which they are important.

People are the most important agents relative to change, since they are the one who decide on the success or failure of the change. People decided that the Netflix change was dead. People decide all the time about whether to adopt change. And people can be capricious and fickle. People are sensitive to the delivery of the change.  They peer into the future to try to understand the affect it will have on them, and if they do not like what they see…  It is the real people in the organization who have to live with the change, who have to make it work, and learn the new, and unlearn the old. It is likely the very same people who have proudly constructed the current situation that will have to let go of their ‘old’ way of doing things to adopt to the new. Barriers to change exist in many directions in the minds of people.  I know this to be true… in making change happen, if you are not sensitive to the people who you are asking to change, and address their fears and concerns, the change will never be accepted.  If you do not give them a clear sense of the future state and where they will be in it, and why it is a better place, they will resist the change and have a very high likely hood of stopping the change, either openly, or more likely passively and quietly, and you may never know why the fabulously planned for change project failed.

Process is the next aspect of a change project that matters.  A better business process is what drives costs down. Avoiding duplication of efforts, and removing extra steps. Looking at alternatives in a ‘what-if’ manner, in order to make better decisions, these are what make businesses smarter, faster, better.  A better business process is like getting a better recipe for the kitchen. Yet, no matter how good a recipe; it still relies on the chef to execute it and the ovens to perform properly. Every business is looking for better business processes, just as every Chef is looking for new recipes.   But putting an expert soufflé recipe, where the soufflé riser higher, in the hands of an inexperienced Chef does not always yield a better soufflé.  People really do matter more than the process.

Technology is the last aspect of the three that effect change. Better technology enables better processes. A better oven does not make a Chef better.  The Chef gets better when they learn to use the new oven in better ways, when they change the way they make the soufflé, since the oven can do it.  A better oven does not do it by itself.  An oven is just an oven. In the same way, better technology is still just technology.  It by itself changes nothing.  New processes can be built that use it, and people can be encouraged to use it in the new process.  Technology changes are the least difficult to implement, and it is likely due to this fact that they are often fixed upon as the simple answer to what are complex business problems requiring a comprehensive approach to changing the business via it people, process, and technology.

Nice Souffle

Change is necessary, but hard and risky. Without change businesses will miss opportunities to adapt to the unforgiving business world, and decline. However, change can be tamed if the attitude towards it is changed to be considered a good thing, and is addressed with a focus on people, process and technology, in that order.  Done right, you can implement the change that will increase the bottom line and avoid a collapse of your soufflé.

Rich Guy

The rise of zombies in pop culture has given credence to the idea that a zombie apocalypse could happen. In a CFO zombie scenario, CFO’s would take over entire companies, roaming the halls eating anything living that got in their way. They would target the brains of supply chain managers and operations people. The proliferation of this idea has led many business people to wonder “How do I avoid a CFO zombie apocalypse?”

Supply chain managers are seeking and developing new and improved ways to exploit the volumes of data available from their ERP systems. They are choosing advanced analytics technologies to understand and design efficient sustainable supply chains. These advanced analytics technologies rely on the use of optimization technology. I am using the mathematical concept of “optimization” as opposed to non-mathematical process of making something better.

Mathematical optimization technology is at the heart of more than a few supply chain software applications. These applications “optimize” some process or decision. Optimization-base programs, for example, those frequently found in strategic supply chain network planning, factory scheduling, sales and operations planning and transportation logistics use well-known mathematical techniques such as linear programming to scientifically determine the “best” result. That “best solution” is usually defined as minimizing or maximizing a single, specific variable, such as cost or profit. However, in many cases the best solution must account for a number of variables or constraints. Advanced analytics technologies can improve a company’s bottom line – and it can improve revenue, too! CFO’s like this.

Advanced analytics technologies provide easy-to-use, optimization-based decision support solutions to solve complex supply chain and production problems.  And, these solutions can help companies quickly determine how to most effectively use limited resources and exploit opportunities.

So, from my perspective, there are seven practical reasons to embrace advanced analytics technologies:

1. Your company saves money, increases profits.
2. You get to use all your ERP system’s data.
3. It’s straightforward and uncomplicated.
4. You have the tools to discover great ideas and make better decisions.
5. At the end of the day, you know the total cost of those decisions.
6. You have a roadmap to make changes.
7. You avoid the CFO zombie apocalypse

Imagine that you’re running a business that offers a wide variety of products ranging from security, to bus and ferry transportation, to public toilets, to refreshments. You have somewhere between 45,000 and 65,000 customers, who all arrive at your various locations en mass, requiring service over a very short time span. To further complicate your situation, you don’t get the opportunity to train many of your ‘employees’ on what they should or shouldn’t do; instead the best you can do is rely on their common sense and good intentions. Actually, since many are volunteers, you can’t necessarily be sure as to the actual number of people who will come to work for you. This is the business that the New York Road Runners Club will be in on November 6 during the running of ING New York City Marathon. And the lessons that the race organizers have learned for managing the event are of universal value and applicability to many logistics and supply chain organizations.

Consider food and water. There are about 23 locations along the route (about 1 per mile starting at mile 3), where mostly volunteer staff is responsible for “stocking” cups of water, Gatoraide, and PowerGel (only available at mile 18). In the past, certain of the less desirable stations have been undermanned, while at others as the day drags along some of the volunteers simply up and leave; “I’m a volunteer, so fire me”. And of course, once the race is over, the staff that remains need to perform the thankless and definitely unglamorous job of cleaning up (at least to some extent) the litter that has been created.

And then there is security. The race attracts a number of world-class runners and security precautions need to taken to make sure that fans and paparazzi do not become too intrusive. To insure that these individuals return year after year, the organizers make sure that these athletes are able to start the race at the head of the pack so that they don’t have to dodge other slower amateurs. In addition, a large number of people typically run the race (and utilize the services) without having officially registered and paid any money. This year, there were about 140,000 applications for the 62,000 slots in the race. This means that about 78,000 people were rejected, and it is estimated that about 15% of these will run the race anyway. The Road Runners Club does not try to prevent any of these unofficial entrants due to the chaotic nature of the race start. However, security is in place at the finish, when the runners are strung-out, so that these “bandits” as they’re called, do not receive any of the available memorabilia.

Finally there’s transportation. Since the race is a “point to point” one, where the finish is at a different location than the start, runners are provided transportation to the beginning of the race. About 20,000 participants will take 522 chartered buses to the starting line. And they’ll all need this service in the space of about 2.5 hours. Since there is only 1 available bridge, if one of the buses were to breakdown at a critical location, a major traffic jam could result delaying many more runners than just those on the one disabled vehicle. Alternatively, approximately 21,100 entrants are expected to use the Staten Island ferry system. Between 5:30am and 8:30am, there will be a ferry leaving Manhattan every 15 minutes. Although the largest of these can accommodate 6,500, the organizers will try to limit each individual trip to half of the ship’s capacity. Again, this is an attempt to make sure that in the event of a breakdown, the number of runners affected (either delayed in Manhattan or stuck on a boat in the middle of the harbor) will be minimized. In fact, one of the ferries did experience mechanical problems in 2010. And when the runners disembark the ferry, a fleet of 70 buses will shuttle them the 2 or 3 miles to the starting line: 10 buses will load simultaneously at the St. George Terminal for the short trip. Last year the average load time for each group of 10 was 4 minutes, 22 seconds.

The New York Road Runners Club typically receives wide praise on blogs and other feedback forums from participants, for how well the Marathon is organized and run. In light of the unique circumstances of such an event, they have learned how to run their logistics operation like clockwork, always anticipating and planning for the worst that might happen. They’ve figured out how to manage a supply chain that is spread over a wide area and with a “work force” that presents its own unique challenges. Many businesses would do well to study their methods and take a page from the same playbook.

Profit Point, the leading supply chain optimization software and services company, today announced a partnership with TBB Global Logistics, a leading domestic and international transportation management provider. The two companies have partnered to provide an integrated solution of logistics and supply chain optimization software and services to provide global manufacturers and distributors an integrated supply chain network and distribution plan.

As a logistics industry leader since 1946, TBB Global Logistics has the knowledge and expertise to develop and manage the most complex supply chain strategies for your company. Together Profit Point and TBBGL can deliver a complete solution to provide increased efficiency, lower total costs, superior customer service and a more competitive position in a dynamic global marketplace. TBB Global Logistics is a non-asset based, supply chain management company that relies on superior, web-based technology and relevant expertise to enable clients’ ability to effectively and profitably compete in a global marketplace.

“Large domestic and international clients are pursuing deeper integration of their supply chain strategies into their day–to-day operations,” noted Dr. Alan Kosansky, Profit Point’s CEO. “Partnering with a company like TBB, provides our clients the ability to develop a seamless transportation and distribution strategy and implementation plan.

Profit Point now has access to global transportation data resources and 3PL expertise insight to deliver the entire package: the strategic supply chain plan along with an operational solution covering supply chain distribution, logistics and transportation engagements. Together, the two companies deliver a unified team of dedicated professionals to meet the demands of global manufacturers and distributors by helping customers design and implement an optimal supply chain.

To learn more about Profit Point’s supply chain software and services, call us at (866) 347-1130 or contact us here.

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 Dow Chemical, Coca-Cola, Toys “R” Us, Logitech and Toyota.

About TBB Global Logistics:

Founded in Baltimore in 1946, TBB Global Logistics provides complete supply chain management services. TBB provides domestic and international transportation management and supply chain solutions through its Supply Chain Guardian^SM brand. Supply chain support services include sourcing, procurement, customized warehouse logistics, inventory management and reverse logistics. TBB offers web-based supply chain management applications and supply chain consulting. Headquartered in New Freedom, Pennsylvania, TBB Global Logistics also has offices in Maryland, located in Hanover by BWI Airport and sales teams throughout the United States. TBB Global maintains a network of agents in countries around the world. TBB is a third generation, family-owned company.

The following is a guest blog post from Sam Polakoff, President, TBB Global Logistics.

Now sit down and think about it for a moment. Exactly when did your company establish its current distribution network? In all likelihood, the answer is three or more years. Is your business the same as it was three years ago? Probably not. What factors commonly drive change necessitating a shift in supply chain strategy? There are many including, but not limited to, the addition of key customers,  product introductions, changing sources of supply, competitive threats, mergers, acquisitions, natural disasters and shifting demographics. So how do you rationalize using yesterday’s supply chain for today’s business needs? At best, you are getting by with higher costs and lower margins. You may feel as if you are losing the battle to stay competitive in a difficult economy.

To compete effectively in a dynamic business environment, continuous evaluation of the marketplace is a critical success factor. Once knowledge is in-hand, your supply chain must be built in an agile manner allowing for efficient shifts to accommodate expected and unexpected change.

I recently spoke to the owner of a U.S. manufacturing company that dates back to the early 20^th century. He was explaining how he was in the final stages of divesting the company of all its hard assets. They had long ago moved manufacturing offshore. They had evolved into a substantial importer managing a series of company-owned distribution centers. Today, all of the distribution is outsourced and the old company headquarters building is up for sale. The shift to a virtual company is near complete. The executives are now free to work on product innovation and the related sales and marketing. They still compete effectively but with higher margins and more agility. This old line company has adapted and overcome, multiple times, aligning and realigning supply chain process with strategic business objectives and changing marketplace conditions. The results are higher profits, supply chain flexibility and happier customers.

Establishing and using key performance indicators will serve as confirmation of effective supply chain process or as a red flag requiring attention. Aligning supply chain with strategic business objectives and keeping your finger on the pulse of the customer will propel you forward on the road to prosperity.

I recently saw this short post on a supply chain-oriented LinkedIn group:
I am responsible for 17 warehouses around the GCC. I want to create 4 major “Hubs” instead. Which would you choose and why, centralized or decentralized warehousing?
This post elicited a variety of responses. Suggestions ranged from looking at the details
Is it a circle route covering all four hubs or direct to and from specific hubs? Because backhaul opportunities can impact the overall costs within your network.
to broader advice, such as
Success of this depends on demand of product category and lead time importance.
When I am faced with a supply chain network design problem, like the one implied here, my first step is to develop a clear definition of the question to be answered – not to hastily jump to a solution. Along with defining the question, you need to determine
• the objective (minimizing cost, maximizing profit, or something else?),
• the options available (the current and potential locations for warehouses in the area, in the context of the post above),
• the constraints that are of importance (service requirements, warehouse capacity, transportation lanes),
• the time horizon, and related criteria.
Then, in the case of a complex supply chain, I find that building a model and using it to evaluate options can give insight regarding both the quantities and the qualities associated with a given solution. Modeling requires effort – you need skills, as well as various data, such as the sales forecast, warehouse location options, transportation and duty costs, etc. – but with the help of a model, and good quality information to populate it, you are able to estimate the implications of different supply chain options, and know whether operating with four hubs is more cost effective than five, or three; where should the hubs best be located; or whether you should have hubs at all. A model can help you make evaluate a variety of trade-offs so that you arrive at a better-informed, and more profitable, decision on how to proceed.

This article written by Alan Kosansky and Jim Piermarini was originally published in Supply Chain Brain.

More than a decade has passed since businesses started using Enterprise Resource Planning (ERP) for managing data and transactions throughout the supply chain. Traditionally, ERP systems have provided transparency and insight into transaction-level data in the supply chain that support important business planning activities. Now, a new generation of applications is being developed to help fill the gaps between general business planning and business-specific, tactical and strategic decisions. These ERP-connected applications offer supply chain executives previously unavailable analysis and insights into the decisions that directly impact customer service, profitability and competitive advantage.

Supply Chains Differences

Supply chains are as different as the companies and people that run them. Some companies view their supply chain operations as a “utility” that is expected to function without any investment in intellectual capital. These organizations are content to rely on industry best practices in their supply chain operations and follow the leaders (or the features that are added by ERP software providers) in supply chain improvement. Other organizations see their supply chain operations as a strategic opportunity to develop a competitive advantage and increase market share. They know that with some small departures from the norm and a modest investment in intellectual capital, supply chains can provide enhanced performance to the business. These companies understand that there are opportunities for creative and unique ideas in the supply chain to improve company performance and achieve business strategy objectives.

Today, many C-level executives see their ERP systems as key enablers to company productivity, and for the most part, they are correct. Since ERP systems perform many valuable functions, there is a natural assumption that they can handle whatever business strategy the company adopts. However, new business ideas by definition run the risk of stressing the ERP system features beyond their ability to cope. Usually these failures are discovered only during the implementation of a new business strategy. So what happens when the ERP system fails to support the new business strategy in certain critical details? Those working in the trenches know this scenario all too well. But, what can be done to implement strategic supply chain initiatives when ERP is not equipped to handle business-specific initiatives?

Making the ERP Work

There are three possible approaches for implementing supply chain planning activities that offer a company a competitive advantage:

1. Figure out how to get the ERP system to do it. This approach works well if the company’s needs align well with current industry practices supported by ERP systems. Otherwise, companies may find themselves going down a path that consumes significant resources for a poor fit in the end. Companies that adhere to this path typically do so in part because there is a strong C-level edict in favor of simple, clean upgrades for the ERP system. Faced with this, the IT organization has enormous power to shape the nature of the supply chain operation to fit within the established ERP norms, and thus can act as a barrier for business innovation and supply chain improvement.

2.Modify the ERP system to provide new functionality. This is an approach often promoted by IT organizations committed to supporting the fewest number of tools. While this is an important cost management objective, it is important to understand the full cost to implement and support the system over the long term. What can be accomplished is often limited by the lack of flexibility in large ERP systems and IT organizations. Since ERP systems are mission-critical systems, the support and maintenance of the core functions are of paramount importance. This task, placed on a limited IT staff, leads to large backlogs of enhancement work and long queue times. And while IT departments are well-equipped to manage their primary assets, few if any IT departments have the requisite domain knowledge to cross over into supply chain optimization. Given long wait times, organizations will often choose the simplest approximation of the business change that can be ushered to the top of the queue. This approach can result in a quick-fix style of strategy implementation, rather than a priority-based feature development, and may leave the most important aspects of the initiative lingering in the queue.

3. Add an integrated solution to the ERP system that replaces one or more functions that are needed to achieve the business strategy. This could be from an out-of-the-box third-party provider, or for full competitive advantage, a targeted or custom supply chain application that integrates with the company’s ERP data. This approach has the benefit of including priority-based features that the current ERP system lacks, and the additional benefit of avoiding the ERP enhancement queue. The downside, however, is that it suffers from the stigma of being yet another application and not the ERP system itself. This usually presents a hurdle that requires a careful analysis to understand the total cost relative to the strategic benefit. While not all business changes will overcome this roadblock, there are good reasons to look at this approach. These include:

• Ensuring a tight fit between the business strategy and the tool execution
• Minimizing the cost, overhead, and extra setup and maintenance in un-needed functions from a shrink-wrapped general purpose tool
• Providing the marketplace with a specialized and unique operation of the supply chain for competitive advantage.

Example from the Field

A leading consumer electronics company with about $2bn in annual sales implemented an integrated solution to its ERP system to manage its order fulfillment process for competitive advantage. The company had recently modified its corporate strategy to increase retail sales through its “big box” customers (Walmart, Best Buy, Staples, etc.). However, key service level agreements were not being met for these customers due to lower than expected order fulfillment measures. A simple inventory analysis recommended large increases in the stock required at the warehouse, with some method of segregating inventory for each big-box customer so it could not be taken by orders from other customers.

In this case, one of the leading causes of low service for customers was that they ordered “just-in-time”. These JIT orders were not being given any priority over other customers’ orders with longer lead times. The company noted that these important customers may have provided accurate plan information, but that was not being used to assure them any better service. The analysis recommended that separate stocks of inventory be set up based on the big-box planning information, and that other customers not be allowed to take from those inventory locations. This would result in a large increase in overall stocks, but should achieve the desired increase in service levels.

One manager questioned this recommendation, wanting to know why the ERP system did not use the big-box planning information to appropriately manage the company’s service levels. She also questioned what could be done to avoid increasing her inventory risk and yet still achieve the business strategy. This is a question many managers face when their analysts say that to improve service you need to increase inventory levels. Often there are alternatives. This key manager’s insight set the path for her company to make a significant shift in their supply chain operations, with remarkable benefits. What follows will answer the question: Can I raise the service level of my key customers without increasing my inventory and capital risk? The short answer is, “yes”. Significant service benefits and risk reductions can be achieved, but only if you are willing to deviate from your ERP’s standard approach to implementing key supply chain initiatives.

The industry standard approach for assigning available inventory to open orders is to use a FIFO (first in, first out) approach. This approach prioritizes orders based on when the order was received and assigns on-hand inventory to those orders that were received and entered into the system first. While this approach has a degree of fairness to it, and is available in all ERP systems, it did not align well with the business objectives of this company. It actually penalized key customers who issued JIT purchase orders while giving ample planning information. These JIT orders would have to wait until all the older orders, from non-key customers, were allocated before they would be assigned any inventory.

The standard ERP process does not take into consideration the customer’s strategic importance or their planning information. Given this FIFO process, the internal recommendation makes sense: set up separate safety stocks for each big-box customer (based on their planning information), in separate inventory locations, and make a rule that directs big-box orders to their separate inventory.

But having separate safety stocks violates the principle that more customers need lower inventory together, than each does individually. Pooling the inventory helps to avoid unnecessary capital risk. The standard ERP FIFO inventory assignment process could be replaced with one that met customer needs more effectively.

The company embarked on a project to take into account several important factors when deciding how much inventory to assign to each order:

• The priority of the customer
• The amount of inventory actually in the sales channel of the customer, and
• The planning information that the customer shared with the company.

Customer priority is a key and strategic factor in deciding which customers receive product, when inventory availability is limited or delayed. This business need meant that strategic and high-volume customers should typically be serviced before others. However, this may not be the case if a strategic or high-volume customer happens to be sitting on a lot of inventory in their channel. In these cases, it may be preferable to share the wealth with smaller volume resellers to maximize the sell-through to retail customers. Moreover, these rules may apply differently for each SKU in a manufacturer’s product line.

The business rules to implement these sorts of complex trade-offs can get complicated. If one wants to retain a certain amount of flexibility in these rules, then the ERP system is a poor place to make these decisions. However, since most, if not all, of the data resides in the ERP system, these decisions must be tightly integrated with the data and transaction handling within the ERP system. So an application was constructed to manage the inventory assignment process in this way to more closely match the business strategy. The new application is run several times a day, extracting needed info from the ERP system, making the assignment of inventory to all open orders, and sending back the info to the ERP system.

Using this integrated solution, overall service levels for these key customers were sharply increased, prompting several supply chain awards from these big-box customers. As a result of the increase in service level, Walmart (a strategic customer) was so pleased they chose to increase their orders of all this company’s products by 100 percent. The overall inventory did not increase.

The new method demonstrated that pooled inventory was an effective approach to containing inventory levels. In subsequent versions of this application, the integration of point of sale data has allowed even more control over the inventory in the various channels to market. As a result, this company has declared this application a business-critical application. It overcame the hurdle, and the application can defend its spot on the chart of critical business applications alongside the ERP system.

Integrated Solution Success

Using an integrated solution to the ERP system was a win-win approach that allows the business the flexibility to manage order fulfillment for competitive advantage while maintaining the benefits of centralized data and the strong transactional handling capabilities delivered by ERP.

But order fulfillment is not the only area where there is opportunity to supplement the strengths of ERP with flexible and powerful business optimization processes and tools. Other areas where leading companies have decided to enhance their ERP capabilities include optimization-based infrastructure planning, sales and operation planning, distribution route and territory planning, transportation bid optimization, transportation fleet planning, and production scheduling.

These are just some examples of where complex and/or strategic business rules can provide competitive advantage through improved supply chain performance. While ERP systems remain the backbone of all successful large business operations today, they are not the only path available to companies who desire to apply innovative approaches to their business and supporting supply chain activities. Global enterprises that seek a competitive advantage now have the opportunity to leverage their ERP investments by integrating optimization-based solutions to key business strategies.

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.

Many commercial enterprises and public agencies operate telephone call centers to provide effective and timely service for customers. By employing nearly 5% of the national workforce, call centers arguably define the “new factory floor” in an increasingly service-based economy. They are fascinating socio-technological systems which are exceptionally well-suited for the application of mathematical modeling and optimization methods.

A typical call center utilizes a computerized call handling system which can archive detailed historical information on call volume, call handling time, and other relevant attributes. This data can be analyzed and aggregated (with appropriate accounting for probabilistic variation) to generate a profile of staffing requirements across future time intervals. In theory, service agents can be optimally scheduled to closely accommodate this profile, resulting in high service levels, low customer abandonment, and efficient agent utilization. In actual practice, however, such performance represents the exception rather than the rule. Most call centers, even well-run ones, do not simultaneously achieve high levels of service quality and operational efficiency [1].

One important reason for the performance gap between theory and practice is lack of sophistication and flexibility in the standard software systems available for call center management. For example, standard systems invariably base interval staffing requirements on the classic “Erlang C” model, which is known to produce distorted results because it does not consider pertinent factors such as customer impatience [2]. Additionally, if the software has any capability for schedule “optimization,” the underlying algorithm is usually a greedy heuristic which sequentially adds agent shifts without due consideration of the complex interactions between them. Beyond these technical limitations, standard systems offer minimal capability to experiment with different shift types and customize the solution strategy.

Profit Point can provide the expertise and custom tools necessary to properly model your unique call center environment and achieve optimal performance. By applying recently-refined mathematics, interval staffing requirements can be accurately determined and optimal shift distributions can be precisely derived [3]. Efficiency improvements exceeding 10% are typical, coincident with improvement in service level performance. Many additional operational factors, such as on-line chat activity and agent specialization, can also be addressed. There is no better time than now for you to reap the rewards of optimizing your organization’s call center operations.

References

[1] Noah Gans, Ger Koole, and Avishai Mandelbaum, “Telephone Call Centers: Tutorial, Review, and Research Prospects,” Manufacturing and Service Management 5, 79–141 (2003).

[2] Lawrence D. Brown, et al., “Statistical Analysis of a Telephone Call Center: A Queueing-Science Perspective,” Journal of the American Statistical Association 100, 36–50 (2005).

[3] Dennis C. Dietz, “Practical Scheduling for Call Center Operations,” Omega 39, 550–557 (2011).

Heuristics and Optimization

 You might think the title should be ‘Heuristics or Optimization’, implying a choice.  But often the two approaches work well together with heuristics speeding an optimization process.  The Wikipedia definition of heuristic calls it an experienced-based technique for problem solving, learning, and discovery.  Wikipedia also mentions using heuristics to find a good enough solution and describes them as ‘strategies using readily accessible, though loosely applicable, information to control problem solving.’

 Those descriptions do not emphasize another aspect of heuristics – there is generally an underlying concept that informs the heuristic.  There is a good reason why we think it will work well in the majority of cases.  For example, an angle sweep heuristic is often used when designing routes for pickup and delivery from a central hub.  Those routes are candidates for selection in a formal optimization.  The designed routes look a lot like the petals of a daisy. 

 The heuristic starts out by heading north and picking locations close to that direction on the way out and back.  How far out the route goes is a property of vehicle capacity or time limitations.  The next route to be generated starts out slightly east of north and follows the same limitations and usually overlaps many of the locations on the first route.  Once the entire compass has been swept, the best set of routes to cover all locations is selected by an optimization.  In the example the heuristic becomes a front end for the optimization. 

 Another example comes from a driver scheduling problem.  Suppose a set of drivers must pick up some commodity from a set of locations for processing at a central plant.  Each trip in this example is an out-and-back because of the nature of the commodity, i.e. only one location can be visited.  Drivers pick up multiple loads in a day, and each location requires multiple visits.  The pickup times are fixed because of other problem features.  One approach is to simply allow all combination of driver-load-location pairings and let an optimizer grind away. 

 But there are other desirable features of the solution:  equalizing number of loads among drivers, and keeping driver dead time between loads to a minimum.  Specifying all the driver loads by some simple heuristic, e.g. send a driver out for the next load as soon as possible, usually ends up with some loads that cannot be covered.  A totally greedy approach fails.

 An approach that seems to work well in this case is to consider some drivers for early loads and some for late loads.  Work from the front of the early loads assigning each of the early drivers the first two loads they can feasibly complete.  Then work from the end of the late loads assigning the last two loads of the late drivers as the last two loads they can feasibly complete. 

 The loads in the middle and the drivers that are not considered early or late are handled by the optimization.  Notice that the heuristic does well on the driver gaps and guarantees that most drivers automatically get two loads, which is a good base in this application.  It also serves to speed the optimization by reducing the pairings to be searched while preserving enough flexibility to get a solution. 

 Furthermore, the heuristic is flexible in that one can choose how many drivers to consider early or late and how many of their loads to nail down heuristically.  Most importantly the heuristic gets better solutions than the optimization finds in any reasonable time.  So while the optimization must have that best solution out there, it will not find it in the time frame the scheduler has to work within.

 My experience is that flexibility is one of the key properties in any good heuristic.  Adaptability to new situations is also a feature of good heuristics.  One final example illustrating adaptability is based on an algorithm called ‘Toyoda’s Algorithm’.  I have applied this particular idea to a number of situations.

 In this example it is applied to sequencing the unloading of containers at a port.  Each container holds a selection of parts which have to be processed by various work centers prior to shipment out of the port.  A manifest shows the selection of the parts and it is known how much work is associated with a given part at a work center.  Not every work center can process every part type.  The objective is to get all the work centers to end their day at the same time and to keep all the work centers busy throughout the day.

 The approach is easy to understand in two dimensions.  The X and Y axis represent the available work time of two work centers, e.g. eight hours.  The arrows represent the amount of work delivered to a work center by a given container.  The dashed line is the ‘ideal path’ — equal amount of work at each work center throughout the day.

 The heuristic simply needs to loop through all available containers at each iteration and always try to get back onto the ideal path.  Penalties for deviation are totally flexible in that small deviations can be without penalty while sizable ones are some function that penalizes them heavily.  Other problem features can be captured, e.g., buffer space at a work center, and incorporated in the penalty function.  This is not a formal optimization, but it is speedy and good enough for the real world application.

 The watchwords seem to be these.  Look for the important features of a good solution.  See if a simple rule or concept will drive the solution toward these good features.  This is especially true when there is little or no economic benefit to the optimal solution.  Try to develop a heuristic that is flexible in adapting to normal variance in instances of the data and can be tuned to choose between competing objectives.

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

Here at Profit Point we regularly hear from clients with well established Enterprise Resource Planning (ERP) systems that they need something more.  ERP systems are excellent for doing certain things including:

1. Providing central repositories of data
2. Enabling cross functional work processes within and across companies
3. Costing of goods
4. Planning resources and materials at a high level

However the more complicated your business work processes and manufacturing production processes the less sufficient a standard ERP system will be in providing the best decision support functionality.  Some of the complications that require decision support systems (DSS) and which we have been helping clients deal with lately include:

1. Work processes to handle make to order versus make to stock material assignments
2. Allocation of inventory to customer orders when in an oversold position
3. Sequence dependent setups / cleanings of manufacturing equipment
4. Scheduling of production sequenced through a “product wheel”

DSS are necessary because of the complexity of first finding a feasible solution and then having some means of sorting through the huge number of feasible options to find a “good” or “optimal” solution.  DSS help in these kinds of situations to:

1. Reduce costs
2. Reduce manufacturing lead times
3. Improve customer service
4. Increase revenue

ERP systems are a necessary part of being able to deliver a DSS by providing the data necessary for making the decisions in question but don’t have the following:

1. Ability to be tailored to a specific work process or manufacturing environment
2. Advanced analytical capability to sort through the complexity and volume of options to get to a “good” or “optimal” solution
3. Graphical user interface tools to be able to allow a user to visualize the data in a way that gives them the insights needed to make decisions

At Profit Point we specialize in listening to our clients needs and then building DSS to unlock improvement opportunities which enable our clients to outdistance the competition.

We recently attended a discovery meeting that was focused on how to conduct a strategic optimization planning study of an existing distribution network. The company wanted to know what changes needed to be made to lower the distribution costs. Several members of the management team were present and there were many questions regarding the ideal business process, study approach and modeling tools to be used to insure a successful project.

What was interesting to me was the overwhelming focus on the modeling tool. Questions about who would be on the project, the timeline, the types of scenarios, data gathering and validation were secondary. It may be important to have the right tool to model your infrastructure, but the real focus should be on the experience and modeling capabilities of the users of the tool.

These are the Critical Success Factors

1. Full participation in data gathering and results review by the project team and management.
2. Clear definition of the key questions to be addressed and the related scenarios required by the Project Sponsor early in the project timeline.
3. Availability of leadership resources within the company throughout the project to review assumptions and to ensure integrity and quality of the input.
4. On time delivery of a complete set of all required data by Project Team members.
5. Acceptance and agreement on the variable, fixed and capital cost assumptions of existing and potential new facilities.
6. Availability, communication, and collaboration of the Project Team members, support staff, and consultant for all working sessions, conference calls, and follow-up between meetings.

It’s important that the optimization modeling tool can incorporate the variables and constraints associated with your supply chain, but the real focus should not be on the tool, but rather on the experience of the users of the tool and their ability to deliver the results of a project. If I were to set out on a network optimization planning project to model my entire supply chain, then my primary focus would be on developing an experienced team of individuals that had the skills to minimize the above risks.

In a recent article, I discussed what are known as “Black Swan” events.  These unexpected, and extreme or severe events are frequently ignored and unplanned for by organizations.  These are occurrences that are thought to be outliers and can be safely ignored.  In that previous post, I mentioned a mathematical approach or formulation for modeling such incidents.  But even if management does not use rigorous mathematical modeling, organizations should always have strategies and plans in place in order to deal with sudden, tectonic changes in their environments.

The recent earthquake and tsunami in Japan highlight the need for businesses to acknowledge and anticipate these worst-case scenarios.  As the April 2^nd edition of ‘The Economist’ magazine outlined, the supply of certain critical components and materials has been severely disrupted by events in Japan.  For example, just 2 companies (Mitsubishi Gas Chemical and Hitachi Chemical) whose plants have been damaged, account for about 90% of the market for a specialty resin used to glue parts of microchips that go into a wide range of electronics.   Obviously, the immediate customers of these 2 will feel the impact immediately.  But ‘knock-on’ effects will ripple through Supply Chains all over the globe and as a result of the decreased output from these plants there will be companies all over the world that will find themselves unable to meet their own sales due to the constrained availability of this resin.  And these consuming companies may never have known that they relied on the 2 affected firms or realized their vulnerability to disruptions.  Another case in point is the battery in Apple’s iPod.  This uses a specific polymer made by Kureha, which accounts for about 70% of that market.  Again, their plant was also damaged in the recent disaster.

And the earthquake and tsunami have had other less obvious impacts on Supply Chains.  For example, operations at some Japanese ports have been disrupted in the aftermath of the disasters.  As a result, the worldwide availability and supply of shipping containers has been affected.  Certain containers that had been expected to arrive in the U.S. or Europe, and thus to have been available for reuse, have been damaged or delayed in Japan.  In essence, some Japanese ports have become “black holes” where containers are stuck and thus unavailable for use/reuse.  Also, due to the reduced capacity of Japan’s national electrical grid, world-wide Supply Chains that have links in Japanese suppliers, have been slowed or impeded in their ability to “keep up” with the other parts of their networks.

It is critical for managements to be more proactive, and anticipate Black Swan type occurrences.  They must remember those immortal words that “stuff happens, and then it happens again”.  Obviously, some things like earthquakes are very difficult to predict.  But disaster planning should be a regular and recurring part of the management process.  Companies should always take pains to make sure that they are not overly dependent on a single supplier, or a single region on the world.  They should take the time and effort required to investigate just where their Supply Chains are vulnerable, since the ultimate sources of some of their key raw materials suppliers may not be clear or obvious.

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

Just this week, IBM’s “Watson” computer showed off its impressive language processing capability by handily beating the best humans at the game Jeopardy!. This was of interest because Jeopardy is filled with tricky language such as puns, slang and wordplay; and Watson was able to process it all, figure out the context, and take it to the humans in winning handily. You can read about Ken Jenning’s firsthand account at http://www.slate.com/id/2284721/.

This story reminds me of the 1997 chess competition between Deep Blue and Gary Kasparov. I was fortunate to hear Kasparov speak at a supply chain conference just days after he had lost to Deep Blue. Despite the fact that he was deeply upset about having lost, Kasparov was able to share important insights that were relevant to the supply chain industry and business in general. What he pointed out was that the competition missed the real point. He described how machines were better at certain kinds of tasks (memorization of massive data, fast processing through the data, etc..), and humans were better at other tasks (certain kinds of inferences and relationships), and that in the future he would hope to see man-machine teams compete against one another to see who could create the best combination of person and machine to be the best at Chess.

Clearly this was an insightful comment to a room filled with supply chain experts. It is our job, every day, to make the best possible decisions in the face of an overwhelming amount of data in front of us. We know for sure, that we cannot rely completely on technology to make these decisions. We know equally well that experience and business savvy are not enough in today’s world to consistently make the best decisions for our business. So our challenge is the one of which we are once again reminded: how best to combine human ingenuity, experience and insight with the power of modern technology to make our business and supply chain be the best they can be. At Profit Point, this is our passion.

At Profit Point, we often repeat the mantra “People, Process, Technology.”  All three are important for the kinds of projects we work on.  You have to have good systems (the technology part) that support good work processes and people that follow the process and use the systems.  If your people are not committed to following the process and using the systems, you are going nowhere fast.

Recently we were discussing with a senior manager at one of our clients what makes for a good Sales and Operations Planning Process (S&OP Process).  Being someone who is more of a process and technology guy I was thinking that he might say something like “You have to have a well thought out work process that is clearly communicated to everyone involved” or “You have to have a system that is easy to work with that supports the work process well.”  WRONG!

The first thing he mentioned was that senior management needed to be openly committed to the process and systems.  He illustrated this for us by recounting what another senior manager at this same client said during an S&OP meeting with a large group.  The group was going back and forth discussing a “potential” order from a customer and this particular senior manager said “If it’s not in the system then it’s a rumor and we don’t plan and schedule for rumors.”

As you can imagine, this cut down on the chatter in the room quite quickly.  This client had spent a lot of time and money developing processes and systems that worked well and those two things are necessary but not sufficient.  You have to have leadership that says “We have a work process to follow and a system to use to support executing that process.  Follow the process and use the system.”

Next you have to have people who do exactly that!  If this is not happening then as I heard from another executive “Either the people will change or the people will change!”

You have to be able to trust the data in the system but really at its root this boils down to trusting the people who entered the data in the system.  As I was reminded, this starts at the top!