Profit Point announced that it has successfully completed a distribution network optimization project with the hydrogen peroxide business team at Arkema Inc. Arkema is a global chemical company and France’s leading chemicals producer. Profit Point is a leading supply chain optimization company, delivering solutions to global manufacturers to optimize their supply chain networks, distribution plans and S&OP processes using a combination of targeted software and consulting services.

Network Design Team

In the very competitive hydrogen peroxide market, Arkema’s objective is to continuously improve product availability and customer service across North America, while simultaneously managing costs throughout the supply chain. Profit Point examined Arkema’s distribution options from manufacturing to the end customer to develop supply chain options to provide the right level of customer service at the best total delivered cost.

“The team at Profit Point developed an understanding of our business and they analyzed complicated data and made it easy to understand,” noted Ed Gertz, Arkema’s Director of Supply Chain for hydrogen peroxide. “They made it easier for us to see how different distribution infrastructure options impacted our cost and our service, which gave us the confidence we needed to make significant changes in our terminal network.”

The solution combined Profit Point’s supply chain design software, Profit Network^TM, and the consulting team’s supply chain optimization expertise. By leveraging existing enterprise data, Arkema was able to develop an actionable infrastructure plan that meets the business’ strategic objectives.

“This is a classic example of the type of benefits large manufacturers can see when they bring together the right stakeholders and the right process, ” added Ted Schaefer, Director of Logistics and Supply Chain Services at Profit Point. “It reminds me a lot of what my Italian grandmother used to say about cooking, ‘If you choose the best ingredients, you will like the result.”

To learn more about Profit Point’s supply chain network design 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 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, Lifetech, Logitech and Toyota.

About Arkema
A global chemical company and France’s leading chemicals producer, Arkema is building the future of the chemical industry every day. Deploying a responsible, innovation-based approach, we produce state-of-the-art specialty chemicals that provide customers with practical solutions to such challenges as climate change, access to drinking water, the future of energy, fossil fuel preservation and the need for lighter materials. With operations in more than 40 countries, some 14,000 employees and 10 research centers, Arkema generates annual revenue of $8.3 billion, and holds leadership positions in all its markets with a portfolio of internationally recognized brands.

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Building applications, especially custom ones, carries with it the burden of answering the question: Does this do what the customer wants?

With complicated systems with many interacting features and business rules, answering this question can be daunting. In fact, evaluating the answer can be daunting too, from the perspective of the customer. Having the sales guy check some boxes in a questionnaire, or watching a demo just doesn’t leave you with the assurance that the application with handle all the business requirements, from either perspective, the vendors or the customer. Everyone I have spoken to who has sold complex software, or who has participated in the purchasing process of software has expressed the same doubt. They are just not sure that the tool will be a good fit. As we all know, that doubt does not always prevent the purchase of the software, as each organization has its own level of risk tolerance, and trust in the vendor’s brand or reputation. Often these other considerations can outweigh the amorphous doubt that some folks might feel. How can one quantify that doubt? Frankly, it’s a quandary.
This thought got us at Profit Point thinking… Wouldn’t it be great if there was another way to evaluate the goodness of fit or an application, or the appropriateness of the parameter settings, to match the business needs of an organization. Would it be great if there was a way to eliminate (or greatly reduce) the doubt, and replace it with facts. Either a business rule is obeyed or it is not. Either a decision is made according to the requirements, or it is not. Let’s eliminate the doubt, we thought, and the world would be a better place. (well a little bit anyway).

There are many processes for testing an application as it is being developed, with writing test scripts, and evaluating the results. All these are based on testing little pieces of code, to ensure that each function or sub routine does what it should do in each case of input data. These processes work fine in our opinion, but only when the sub of function is able to be considered independently form the others. When the system has functions that interact heavily, then this approach doesn’t reduce the doubt that the functions may conflict or compete in a way that the whole system suffers. How then to evaluate the whole system? Could we treat the entire application as one black box, and evaluate the important business cases, and evaluate the results? This is exactly what we have done, with the effect of reducing the doubt to zero about the suitability of the application for a business.
With several of our clients we have worked out what seems to be a great process of testing a complex software solution for suitability to the business requirement. In this case, the detailed level function testing methods were not open to us, since the solution relied on a Linear Programming technique.
This process is really just an amplification of the standard testing process.

1. Define the test case, with the expected results
2. Construct the test data
3. Build or configure the application
4. Run the Test using the Test Data and Evaluate the results – Pass or Fail

This is the standard process for testing small functions, where the expected results are clear and easy to imagine. However, in some systems where there many interacting rules and conflicting priorities, it may not be simple to know what the expected results should be without the help of the tool’s structure to evaluate them. Such is the case with many of our application, with layer upon layer of business rules and competing priorities… The very reason for using an LP based approach makes testing more complex.
In the revised process, we have, for each new business requirement:

1.  Construct the test case with the test data
2. Build or configure the application
3. Set the expected results using the results of the first pass build
4. Re-factor the code and test until all test are passing

Profit Point’s Software Testing Process

In my next blog I will show you the simple excel based tools we use to facilitate the test evaluation.

In practice, the process works well, new versions of the application go into production without any surprises, and with full confidence of the application management team that all the business requirements are 100% met.

No doubt – no doubt a better process.

By Jim Piermarini

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There is nothing fundamentally new in the area of Supply Chain management! Supply Chains have existed ever since some caveman somewhere decided to make specialty dinosaur clubs from a particular kind of really hard wood and very sharp rocks that he got from two other troglodytes over in the next valley. What has changed however is the nature and speed of the communication that occurs between the participants in a Supply Chain, and the ability of those actors in the process to keep and use past information for making decisions.
In my current job in Supply Chain consulting, I frequently work with Production Schedulers. These are folks who I have a lot of empathy with, since once upon a time, a long time ago I actually started my career as a production scheduler (and no I was not involved in the dinosaur club market!).  And I was recently thinking about this idea that what is new in the area of supply chain management is a result of the way we communicate today as compared to the past.
I hate to admit it, but “back in the day” when I was scheduling, computers were huge boxes controlled by a phalanx of support people in separate departments, if not different buildings. They were not the practical job-aids that they are today. And if you used the word internet, people would have thought you meant to say ‘hairnet’.  In building a schedule the basic tool was a board where I would physically place magnetic strips that were marked to indicate which products should be produced on particular pieces of equipment.
The communication that occurred was in the form of either paperwork carried in the interoffice mail, phone calls, or face-to-face conversation. So if a particular manufacturing process was running late, there would usually be a tremendous time lag before the scheduler would find out. Or if there had been some major snafu somewhere either in my own organization, or in any of the suppliers’ plants, I probably would not hear about it until I proactively asked. And of course from the customer’s point of view, they couldn’t simply change their order and email (what’s that?) me the new information. Obviously there was no real-time tracking of a truck’s location, and whether or not it was broken down or stuck in traffic on the N.J. Turnpike. And of course because there were no computers, I could never really be sure as to just how much product was available to ship to customers. Although the paperwork might say that there were 20 pallets on hand, the guys out in the warehouse might have lost track of where exactly all of those pallets might be.
What this all inevitably led to was a lot of extra inventory being carried at every stage of the Supply Chain. This was because you always wanted to try to have a little extra cushion built in to cover yourself for the unexpected. As a scheduler, I would catch a lot of grief (a nice way of saying you know what) from my boss if a production line was to shut down because they ran out of the intermediates or raw materials needed to keep running. Or if I committed to a customer order of 15 pallets on Wednesday, but the shipping department could only find 14 pallets, there was “hell to pay”.  I can remember literally climbing over the tops of shifting and unstable pallet stacks (OSHA would have had a field day), and shining a flashlight down the gaps looking for inventory that a “3 x 5” index card said was still in the warehouse somewhere.
And I don’t think the comparison of my experience vis-à-vis schedulers today, is any different than the comparison of those who did scheduling in 1900 versus me in 1974. In 1900, telephones were only just coming into widespread use, and typewriters were a comparatively new-fangled gadget. Ultimately, Trog (the son of the caveman who I mentioned earlier) was able to streamline his father’s Supply Chain tremendously when we was able to get the customers, as well as the wood and the rock guy, to start using that new concept called “writing” (of course which language to use could have been an issue).
The field of Supply Chain management will always be at the mercy of communication technology. Over time, Supply Chains will continue to morph into more efficient contributors to organizations’ bottom lines as the ability of humans to communicate with each other evolves.

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In a recent sailing trip to Croatia, we lost our sailboat.   Sounds outrageous, but it really wasn’t difficult at all.  It was early evening when we anchored in the harbor and took our dinghy to shore for dinner.  A few hours later, seeing the wind pick up, we returned to the spot where we thought we had left the boat and it had vanished.  It was dark, very dark.  Looking for the boat on the dark ocean at night was like looking for a needle in a haystack.  After hours of searching, we finally found the boat headed out to sea, we had not let out sufficient line for the anchor.  The harbor was surrounded by rocky cliffs, and we had no idea what course the boat had taken, and if it had incurred any damage in its renegade voyage.  We shook a mechanic out of bed to evaluate if any damage had been done.  After it was all said and done, we were very lucky, the boat was fine.

I can’t help but liken this to a manufacturing supply chain, without a business process to chart the way, without software helping to navigate and support the process and without people in place trained to captain the process, the business, like an unanchored sailboat, drifts into sometimes dangerous territory.   Yet, this scenario is not atypical for many companies.

How do you know if the anchor is set on your supply chain?  Here are some attributes:

1. A clear and documented business process that serves as the guide to how you operate under normal conditions as well as defines flows for unexpected changes and events.  As conditions change, the process should be reevaluated and assessed in an ongoing fashion.
2. Software that supports the business process and enables users to react quickly to unexpected events making your business adaptable and flexible.  Software should be tailored to your business needs, one that is one size fits all does not necessarily work for all products and customers.
3. Trained people who are living the business process and using the software giving your business a competitive edge.  Additionally, attention to detail and data driving the software is crucial and can have a big impact on the business.

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

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Here’s an audio interview with Dr. Alan Kosansky on the “Future of Supply Chain Management”.

TRANSCRIPT:

Interviewer: What’s the future of supply chain management? Many companies have implemented ERP software solutions, but if you’re relying on well-traveled, standardized software to manage your supply chain, you could actually be eroding your competitive edge. Joining us now to explain why is Dr. Alan Kosansky, co-founder and President of Profit Point. Alan, welcome!

Now, Alan—ERP Software has definitely become commonplace as a solution in supply chain management—it’s certainly convenient, but is the software on its own enough?

Kosansky: ERP software plays a critical role in the enterprise. From its inception it has provided the backbone for accounting and financial functions. As it has extended into supply chain functions, it allows us to quantitatively manage the supply chain. All these systems have enabled significant efficiencies for companies over the past 20 years. And they have become commoditized. Leading companies are both leveraging what these ERP have to offer AND ALSO defining complementary supply chain processes that offer competitive advantage. For those supply chain processes for which being as good as the marketplace is enough, out of the box ERP and APS solutions are great. However, for those supply chain processes where your company believes they can create and maintain competitive advantage, using the solutions that the marketplace is using is not enough.

Interviewer: At Profit Point you believe that the future of supply chain management is in optimization based decision making – what is optimization based decision making?

Kosansky: Supply Chain profitability is based on the price you sell your goods minus the total delivered cost of making and getting those products to your customers. While this may seem like simple arithmetic, it is actually very difficult for companies to accurately predict profitability and then make supply chain planning decisions that maximize their profitability. Firstly, Computing the total delivered cost is difficult. Secondly, even those companies that are have a centralized way to view all this data typically have difficulty making the tradeoffs implicit in their supply chain costs: Inventory or customer service? Manufacturing, warehousing or transportation costs? Optimization based decision making allows supply chain planners to both see all the relevant data and make the tradeoffs that lead to maximum profitability.

Interviewer: … and how can optimization based decision making help ‘unlock’ a company’s competitive edge?

Kosansky: Companies that identify supply chain processes where they have developed some sort of competitive advantage need to embody those processes in enabling technology that support this better decision-making. Most often, this includes some form of optimization decision technology that quickly evaluates alternative scenarios and identifies those decisions that lead to maximum profitability. By combining the big data that is available today, with leading edge decision making technologies, leading companies are beating their competitors in every aspect of their operations, including the supply chain.

Interviewer: Well Alan this is great news – thanks for coming on and telling us about it! That was Dr. Alan Kosansky, President of Profit Point. For more information go to ProfitPT.com… that’s ProfitPT.com.

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Lesson 2:  You may not know the best and / or ultimate design for a tool until you try it out for some time in the real world.

In my last blog post, I talked about the waterproof boots I received as a gift and how I never knew what I was missing out on until I received and started using those boots.  In this blog post, I’d like to continue my story.

My waterproof boots were working just great for me.  Our dog, Blue, loved walking out in the wet fields behind our house and I didn’t mind that my boots were getting muddy since I could easily wash them off.  Several months after using my boots, I made an unfortunate discovery.  My right foot was getting wet!  Turns out my boots had developed a crack in the tread.  While my boots had several features I really liked and duct tape worked as a temporary repair, I decided I had to replace my boots.

I thought about getting a new pair of the same brand / model but was concerned that there was a design flaw and that these boots were not sturdy enough to walk with on a regular basis.  I decided to switch to a boot with a much better and stronger designed tread as well as one with the other features I really liked.

If I had gone to the store before owning and using the first pair of boots, I don’t think I could have articulated exactly what features I needed / wanted in a boot.  It was only after having an extended real world experience with the boots that I was able to much more clearly and confidently articulate what I wanted in a boot.

This is a common theme with our supply chain change projects.  Often these projects are a discovery process for us and our clients because neither of us definitively know a priori all the functionality that will ultimately end up in the finished tool.  That is why our typical approach is to begin with a pilot project that includes the minimum scope required to implement the basic functionality.  This allows for this process of discovery to unfold and while starting to deliver on the stream of anticipated benefits sooner rather than later.  This allows for the future releases of the tool to have a very tight scope on only those items that we are both confident can be delivered and will achieve the anticipated benefits.

Are you ready to get started on this journey?

Here I am with Blue and my new waterproof boots

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Nearly 50 years ago, a 22 year-old musician from Minnesota released his third folk music album in as many years. The title track “The Times They Are a-Changin” warned the listener “you better start swimming or you’ll sink like a stone, for the times they are a-changin.” Critics were confounded because not only was a mere kid from Hibbing wagging a parental finger at an entire country, but nearly everyone knew he was right. Those who declined to change with the times were sure to be left behind. That kid, of course, was Bob Dylan.

The Old Road Is Rapidly Aging

This musical detour has a purpose: there is crucial wisdom in that song for small businesses and entrepreneurs. While five short years ago “going green” was an optional choice for workplaces, now even the biggest companies have committed to more sustainability in their operation. In fact, not going green can put your operation at a competitive disadvantage.

Who Went Green!?

Wal-Mart is leading the charge in business sustainability. A week ago, the corporate giant released a 126-page progress report on its efforts to be a more socially responsible and sustainable company, something they’ve done annually since 2008. These reports can be found here, if you’re interested. However, the company’s biggest step may be the inclusion of a “Sustainability Index Score” (SIS) on their products near the price tag. These scores rate the environmentally-friendly factor of product packing and production.

Make no mistake; Wal-Mart has not gone soft. While they enjoy their greener status, they’re most excited about how the changes have affected their bottom line. Consumers want to feel good about the products they buy, and want to feel like they’re making environmentally responsible purchases. Wal-Mart believes these SIS scores will give customers peace of mind when they shop in the retail chain.

Wal-Mart has also installed skylights in their stores and painted the roofs of their buildings with reflective white paint, which shaved a cool $1 million from their electricity bills last year.

In a few short years, the once villainous company has become a model for sustainability, and their commitment has made them more profitable.

Now Is The Time

Wal-Mart’s sudden obsession with sustainability is a microcosm of a larger trend showing that running a green business is no longer only a strategy for courting progressives: it is the new norm. Yet, it has always been admittedly easier to want to be sustainable than it is to be sustainable, especially since many business owners already have their hands full with the usual challenges of day-to-day operations in a less-than-stellar economy.

Nevertheless, things have changed from the way they were a few years ago. Many of the obstacles that were deal-breakers are no longer there, or at least they’re not so insurmountable. Since more businesses have committed to being environmentally conscious, collectively, they’ve learned how to be better at it. Here are some tricks other small business owners and entrepreneurs have picked up along the way that can help make your green transition go smoothly, save money, and make your business more attractive to potential customers:

• Commit – If you’re serious about becoming more sustainable, you have to commit. This applies especially to small businesses with multiple employees. Putting a recycling can next to the garbage is a good start, but you can go further. If you’re a small business leader, you must communicate to your employees “this is the way we do things here from now on.” Successful conversions require strong leadership.
• Self-Audit – Do an energy/waste audit of your business. Take a look at your business on a macro-level, and look for ways you can be more efficient. This could be as small-scale as better using the timer on your thermostat, or as large as finding distribution routes for deliveries with less stop signs and stop lights.
• Upgrade – Upgrade your building where you can. Many hot water heaters and toilets, for example, are decades old and are very inefficient. They use loads of water and run for a long time. Newer units can drastically reduce water bills. Newer air conditioning and heating units are also much more efficient than their predecessors. Note: do some research on government rebates. Sometimes there are some pretty awesome kickbacks for upgrading to more efficient technologies.
• Track Your Progress – Tracking your energy savings is wonderful for everyone at a business. It’s nice for you when you’re paying the bills at the end of the month, but it also gives your employees ownership of the company’s green growth. This gives them proof that their hard work has paid off and gives them motivation to keep it up in the future.

Continuing with the theme of ownership, encourage your employees to be innovative and creative, always looking for ways to be more sustainable. After all, someone had to think of Wal-Mart’s sustainability scores.

Now

Yes; for the past decade the terms “green” and “sustainable” have been used ad nauseum, but it is unfortunate if this dilutes their importance. Sustainable businesses are not part of a fad that will soon disappear; they’re the new standard. Not only are they more ethical, but they’re also more profitable. Times have changed, indeed.

Hopefully, upon reading this, something you can change has already popped into your mind. What are some of the new ways you’ve come up with to go green? Have you already instituted changes in your small business that are providing a profitable return?

Author: Brent Hardy is Vice President of www.extraspace.com, responsible for all corporate construction & facilities management. He writes about corporate sustainable practices at blog.extraspace.com/category/sustainability.

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Lesson 1:  You may not know what you are missing out on until you get something new.

My wife bought me a pair of waterproof boots and gave them to me 2 Christmases ago.  Admittedly, I was not the most gracious gift recipient.  I uttered the customary thank you but at that moment I had no idea what I was going to use these boots for.

As it turns out these boots were a great gift!  I often take our dog, Blue, out for a walk over lunch time in some fields behind our house.  Prior to receiving these boots as a gift, when the fields were wet and muddy, I would end up walking Blue on the street in our neighborhood.  Blue much preferred our jaunts in the fields and the waterproof boots enabled me to trudge through the mud without ruining my sneakers which is what was happening before if I ventured into the wet fields with them on.

My problem was that I was so into the groove of walking in the neighborhood when it was wet out that I really couldn’t conceive of another way.  I thought that Blue and I would just have to grin and bear it when it was wet out and walk in the neighborhood.  Receiving and then using these waterproof boots was kind of eye opening for me.  I didn’t know what I was missing out on until I received the boots.

We find that the same thing can be true with our clients.  They may just be doing things the way they have always been done and have a hard time believing that there is a better way.  The way they have done things has worked so far so why bother to change when you can stay the same!  While the old adage “If it ain’t broke, don’t fix it” may be applicable, how about changing so you can operate on a different plane.

Next week I’ll post Lesson 2.

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Watch your thoughts, for they become words. Watch your words, for they become actions. Watch your actions, for they become habits. Watch your habits, for they become your character. And watch your character, for it becomes your destiny. What we think, we become. “My father always said that”. Margaret Thatcher

The year 2012 is behind us. If you are like me, you may not have accomplished all the goals that you had in mind at the beginning of the year. No worries, the year 2013 is before us.

Here are Seven Rights of Fulfillment taken from the CSCMP website, which I believe are relevant for our industry, but also can be adopted as a framework for your goals for this year:

1. The right product
2. To the right customer
3. At the right time
4. At the right place
5. In the right condition
6. In the right quantity
7. At the right cost

The ability to meet customer requirements is built upon the expectation that everything is done correctly in the supply chain. In the quest to provide quality service and satisfy customers, world-class companies along the supply chain are guided by these Seven Rights of Fulfillment.

Goal setting involves establishing specific, measurable, achievable, realistic and time-targeted goals. Take a moment right now and think of one goal that you want to accomplish in 2013. Done? You just primed your subconscious.

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The most mature Supply Chain organization are engaging in a strategic process whereby they identify two categories of supply chain processes within their company: Category B are those processes where performing at the industry standard is sufficient. Typical processes in this category include accounts payable, accounts receivable, raw material sourcing, and freight contracting. Category A are those processes where they believe they have ideas and/or practices that give them competitive advantage. These processes might include S&OP, production scheduling, territory planning, or network design.

For supply chain processes for which performing at the industry standard is sufficient, standard technology solutions are sufficient as well. However for processes here there is an opportunity for competitive advantage, out of the box standard solutions will not do. Often mathematical optimization is a critical enabling technology for those supply chain processes that are a source of competitive advantage. Furthermore there is typically some level of customization required in order to uniquely capture the ideas and processes that embody the competitive advantage.

For example, consider the order fulfillment process in consumer electronics. Products in this industry become obsolete very quickly. For this reason, electronics suppliers to “big box” retailers like Best Buy and Walmart often operate in a back-order situation to reduce the probability of getting stuck with returns and obsolete stock. While standard solutions most commonly use a traditional first-in, first-out (FIFO) method to allocate inventory to orders, more advanced consumer electronics companies use more sophisticated approaches to determine how best to assign limited inventory to their customers. These approaches take into account customer priority, in-transit inventory and inventory already in the channel to determine algorithmically in what sequence and quantity to assign inventory to orders. Since they cannot simply fill all the orders of their biggest customers at the expense of the rest of their customer portfolio, they apply sophisticated business rules to balance the needs of all their customers while making sure their most important customer’s feel the pinch of inventory shortfalls the least. In this case, a custom solution for deploying in-transit inventory helps to “score” orders based on customer priority as well as on the inventory in the channel. This approach, which uses logic and algorithms well beyond the capabilities of standard ERP solutions, reduces the seller’s total supply chain costs and improves its performance scorecard relative to its most important customers.

Mature supply chain organizations typically identify about 80% of their process as “standard” and are able to use out of the box standard ERP and supply chain solutions here. In addition, they are identifying about 20% of their processes as being a source of competitive advantage and are developing and implementing solutions that capture that advantage.

If your organization is engaged in these strategic management practices, we commend you for your leadership in supply chain maturity. If not, let’s work and grow together.

For a more detailed discussion of this topic, read the Supply Chain Quarterly magazine article by Dr. Alan Kosansky and Ted Schaefer entitled Is standardized software eroding your competitive edge?

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This quarter’s Supply Chain Quarterly magazine features an article by Dr. Alan Kosansky and Ted Schaefer entitled Is standardized software eroding your competitive edge?  The article addresses the pros and cons of standard enterprise software packages and discusses how generic applications may not accommodate the processes that leading company’s utilize to gain competitive advantage.

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What kind of risks are you prepared for?

As a supply chain manager, you have profound control over the operations of your business. However, it is not without limits, and mother nature can quickly and capriciously halt even the smoothest operation. Or other man-made events can seemingly conspire to prevent goods from crossing borders, or navigating traffic, or being produced and delivered on time. How can you predict where and when your supply chain may fall prey to unforeseen black swan events?

Prediction is very difficult, especially about the future. (Niels Bohr, Danish physicist)  But there are likely some future risks that your stockholders are thinking about that you might be expected to have prepare for. The post event second guessing phrase: “You should have known, or at least prepared for” has been heard in many corporate supply chain offices after recent supply chain breaking cataclysmic events: tsunami, hurricane, earthquake, you name it.

• What will happen to your supply chain if oil reaches $300 / barrel? What lanes will no longer be affordable, or even available?
• What will happen if sea level rises, causing ports to close, highways to flood, and rails lines to disappear?
• What will happen if the cost of a ton of CO2 is set to $50?
• What will happen if another conflict arises in the oil countries?
• What will happen if China’s economy shrinks substantially?
• What will happen if China’s economy really takes off?
• What will happen if China’s economy really slows down?
• What will happen if the US faces a serious drought in the mid-west?

What will happen if… you name it, it is lurking out there to have a potentially dramatic effect on your supply chain.

As a supply chain manager, your shareholders expect you to look at the effect on supply, transportation, manufacturing, and demand. The effect may be felt in scarcity, cost, availability, capacity, government controls, taxes, customer preference, and other factors.

Do you have a model of your supply chain that would allow you to run the what-if scenario to see how your supply chain and your business would fare in the face of these black swan events?

Driving toward a robust and fault tolerant supply chain  should be the goal of every supply chain manager. And a way to achieve that is to design it with disruption in mind.  Understanding the role (and the cost) of dual sourcing critical components, diversified manufacturing and warehousing, risk mitigating transportation contracting, on-shoring/off-shoring some manufacturing, environmental impacts, and customer preferences, just to begin the list, can be an overwhelming task. Yet, there are tools and processes that can help with this, and if you want to be able to face the difficulties of the future with confidence, do not ignore them.  The tools are about supply chain planning and modelling. The processes are about risk management, and robust supply chain design. Profit Point helps companies all over the world address these and other issues to make some of the of the best running supply chains anywhere.

The future is coming, are you ready for it?

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Manufacture and delivery of a company’s products usually consume a wide array of materials, either directly or indirectly, ranging from rare commodities like titanium or zinc, to the most basic, such as water. Given the explosive growth of world population in recent history, and the resulting increases in consumption of food and other products, and the finite nature of raw materials, the sustainability of the supply chain over time is a growing planning concern for many companies.  Water is often a key focus in their planning, whether it is the main ingredient in their product, as it is in the beverage industry, or a major component, as it is for power generation, paper production, mining and many other industries.

One way to measure the water impact of companies (or countries, or production of industrial or agricultural products, such as textiles, rice or beef) is through the calculation of a “water footprint”, which can help identify what water is used (both directly and indirectly), where it comes from, and the relative efficiency of its use.  This concept is discussed in detail on the website www.waterfootprint.org  which has a wide array of statistics, as well as an interactive water footprint calculator and the option to download extensive research materials.  According to the website 92% of total water consumption in the world is associated with agricultural use.  However, since agricultural products are raw materials in many corporate supply chains, and are shipped from one location to another around the world, nations and companies effectively consume water from around the world.  The figure below shows major international water consumption flows, taking into account such factors as goods consuming water in production in one part of the world are shipped to a consumer in another area.

Source:Mekonnen and Hoekstra (2011)

Why should a company be concerned about their water consumption?  There are several risks that all companies face, to varying degrees, as global water consumption increases, including

• Physical supply risk: will fresh water always be available in the required quantities for your operations?
• Corporate image risk: your corporate image will likely take a hit if you are called out as a “polluter” or “water waster”
• Governmental interference risk: governmental bodies are becoming increasingly interested in water consumption, and can impose regulations that can be difficult to deal with
• Profit risk: all of the above risks can translate to a deterioration of your bottom line.

But with risk comes opportunity – planning for your water consumption, and footprint, as part of your supply chain analysis, and acting in response, can keep you ahead of the curve!

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The global economy hangs in a tenuous balance. U.S. growth has been slow, but steady, while the global economy has been mixed.  The survey data suggests that logistics planners are most concerned with meeting service levels, driven by capacity concerns, rising costs and the need to increase productivity.

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It wasn’t very long ago that the United States was still a major location for the manufacture of electronics. Apple Inc. used to boast that its products were all made in America. There were a number of large plants (and many were in fact foreign owned) making everything from televisions to mass-market audio devices.

But in the past few years that has changed dramatically. Today, almost all of the millions upon millions of Apple Inc. devices are manufactured oversees. Or look at the Amazon Kindle. Despite the fact that the key innovation that underlies the success of the Kindle – the electronic ink which is produced in Massachusetts – all the remaining components in this product are manufactured in Asia. Over dinner in February 2011, President Obama is rumored to have asked Steve Jobs of Apple Inc. why couldn’t the company’s products be “made in the U.S.A.”. Jobs replied “those jobs aren’t coming back” according to another dinner guest.

No company’s supply chain exists in a vacuum; they are like living organisms that exist and depend on their environment and surroundings. So what Jobs was saying was that the supporting economies, societies and infrastructure in which Apple’s supply chain exists have moved to Asia and it is an extremely difficult task to uproot it and relocate it to the U.S.

Executives at various mass-market electronics manufacturers tell glowing stories of the flexibility and responsiveness of their Asian suppliers. There’s a story where Apple made a late-stage design change to the frames around the iPhone screen. The Chinese manufacturer roused 8000 workers in the company’s dormitories at midnight, and within half an hour they began a 12-hour shift. Four days later, the factory was turning out 10,000 iPhones per day.

And the reason why these supply chains have taken root in Asia is not just a result of relatively cheap labor. In an article in the New York Times, Timothy D. Cook of Apple explained that factories in Asia “can scale up and down” at breathtaking speeds. They have the mid-level engineering talent and other skilled and un-skilled personnel resources to be able to rapidly adjust to their customer’s requirements. And in addition, the supporting 2nd-tier businesses that supply the electronics manufacturers are located nearby and are themselves extremely flexible and responsive. Thus a full and complete ecosystem has grown and flourished in East Asia for manufacturing mass-market electronics which is not easily or quickly replicated elsewhere in the world.

The experience of the electronics industry should be a cautionary tale for the U.S. and other advanced economies. Supply Chains are networks of interdependent actors. And in the case of manufacturing enterprises, their physical location has an impact on their ability to perform efficiently. This nation should have a debate as to what are the critical industries that we want to keep rooted in this country and then develop policies and infrastructure that will foster the growth and long-run health of the businesses that are involved in these areas of the economy.

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DC Velocity featured an article entitled A Network Design is Never Done. The article, which included an interview with Profit Point’s Alan Kosansky, touches upon on the trend of large manufacturers to move from designing their supply chain networks once to continuously improving the design to meet customer demand and supplier mix, among other things.

You can read the complete article here.

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There is nothing like a bit of vacation to help with perspective.

Recently, I read about the San Diego Big Boom fireworks fiasco — when an elaborate Fourth of July fireworks display was spectacularly ruined after all 7,000 fireworks went off at the same time. If you haven’t seen the video, here is a link.

And I was reading an article in the local newspaper on the recent news on the Higgs: Getting from Cape Cod to Higgs boson read it here:

And I was thinking about how hard it is to know something, really know it. The data collected at CERN when they smash those particle streams together must look a lot like the first video. A ton of activity, all in a short time, and a bunch of noise in that Big Data. Imagine having to look at the fireworks video and then determine the list of all the individual type of fireworks that went up… I guess that is similar to what the folks at CERN have to do to find the single firecracker that is the Higgs boson.

Sometimes we are faced with seemingly overwhelming tasks of finding that needle in the haystack.

In our business, we help companies look among potentially many millions of choices to find the best way of operating their supply chains. Yeah, I know it is not the Higgs boson. But it could be a way to recover from a devastating earthquake and tsunami that disrupted operations literally overnight. It could be the way to restore profitability to an ailing business in a contracting economy. It could be a way to reduce the greenhouse footprint by eliminating unneeded transportation, or decrease water consumption in dry areas. It could be a way to expand in the best way to use assets and capital in the long term. It could be to reduce waste by stocking what the customers want.

These ways of running the business, of running the supply chain, that make a real difference, are made possible by the vast amounts of data being collected by ERP systems all over the world, every day. Big Data like the ‘point-of’sale’ info on each unit that is sold from a retailer. Big Data like actual transportation costs to move a unit from LA to Boston, or from Shanghai to LA. Big Data like the price elasticity of a product, or the number of products that can be in a certain warehouse. These data and many many other data points are being collected every day and can be utilized to improve the operation of the business in nearly real time. In our experience, much of the potential of this vast collection of data is going to waste. The vastness of the Big Data can itself appear to be overwhelming. Too many fireworks at once.

Having the data is only part of the solution. Businesses are adopting systems to organize that data and make it available to their business users in data warehouses and other data cubes. Business users are learning to devour that data with great visualization tools like Tableau and pivot tables. They are looking for the trends or anomalies that will allow them to learn something about their operations. And some businesses adopting more specialized tools to leverage that data into an automated way of looking deeper into the data. Optimization tools like our Profit Network, Profit Planner, or Profit Scheduler can process vast quantities of data to find the best way of configuring or operating the supply chain.
So, while it is not the Higgs boson that we help people find, businesses do rely on us to make sense of a big bang of data and hopefully see some fireworks along the way.

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Isn’t that one of our main objectives in life, whether the setting is business, participation in sports, your personal life?

I see part of our role at Profit Point as helping our clients to achieve their potentials. We do this by applying mathematical techniques to find good solutions to the problems that business leaders face. Many of our clients call upon us when their business is going through a time of transition, particularly when there is a merger of organizations.

Analyzing the potential for facility rationalization is one of the standard uses of our Profit Network infrastructure planning software. We, and clients, have used this software to decide how many plants, production lines and warehouses they need to best serve their customers in many different types of situations.

But mergers present opportunities to organizations further down the supply chain as well, of course. Many companies use vehicles to deliver product to customers on a regular basis, and when there is a merger (and at other times) well-run businesses are looking for ways to ensure that these types of activities are carried out efficiently.

Our Profit Vehicle Planner (PVP) software can help in planning for a merger at that next level down – for instance, when you have two organizations serving customers in a metro area, how do you combine them together?

The diagrams below give you an idea of the situation a company might face. They have operations in various parts of the country, serving hundreds of customers in each area. Their Southern California customers might be spread as in the pattern in the diagram below on the left.

To serve these customers they currently have five route territories, covering the customer deliveries, as is shown in the diagram on the right.

Now they plan to merge with a smaller competitor in the same type of business. The acquired company has customers in southern California with a similar spread across the geography, divided into two territories, as is shown in the diagrams below.

PVP will allow the analyst to look at all of the customers together,

and in this case, when the territory planning algorithm runs, it finds that deliveries can be made in six more-compact route territories, covering all customers. Separately the two companies had seven territories – and merged they have the potential to serve them with six – thus saving a truck and various associated expenses.  The merged solution is shown below.

Implementing this merged solution can help the company better achieve its potential – for profits.

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Upgraded Vehicle Route Planner Software Improves Decisions in Distribution Planning, Fleet Sizing, Driver Productivity and Transportation Cost Reduction  

Profit Point announces the introduction of Profit Vehicle Planner™ 3.1, a major upgrade to our distribution analysis and design software. Profit Vehicle Planner is designed for Strategic Logistic and Transportation Managers that have large fleets with multiple daily delivery stops and changing logistics processes. The software update includes a combination of new features and technical enhancements which combine to support richer scenario modeling for larger large fleets with multiple daily delivery stops and changing logistics processes.

Designed to be highly accessible and customizable, Profit Vehicle Planner (PVP™) uses standard Microsoft business tools for calculation and display of information, including Excel, Access and MapPoint. The software automatically creates and designs the optimal sales/distribution territories. It does this by dividing customers into territories and days of service, with each territory representing the volume delivered by one delivery vehicle and one driver over the course of the planning horizon. The objective of the proprietary heuristic algorithm used in Profit Vehicle Planner is to assign customers to territories that will minimize the number of trucks required to serve the customer volumes while delivering within the various common and business-specific constraints, including customer frequency of service, hours available per day, volume available per truck, unique equipment requirements and virtually any other custom constraint required.

“With 12 years in the field, Profit Vehicle Planner has been put to the test against some of the world’s largest supply chain distribution problems,”  noted Jim Piermarini, Profit Point’s Chief Technology Officer. “Transportation best practices have expanded over time, so decision makers are looking for more comprehensive strategic logistics and transportation modeling solutions.”

With the new release, PVP’s expanded features include extensive customization of the software to tailor the territory planning solution to be cost and time effective to meet your unique and specific distribution requirements and the ability to use imported address data to automatically geocode customers for whom lat/long data is missing.

For companies that perceive distribution as mission critical, users have the option to integrate PVP deeply into their supply chain systems to import and export data in to their ERP system. Companies that seek the most cost-effective solution have the ability to import virtually any relevant data from an Excel template that includes the following:

• Customer data such as address, location, frequency of service, volume per stop, time required per stop, other data as needed
• Truck data such as size, days of the week that it is available, order in which it is to be scheduled, hours available each day, special equipment, other data as needed
• Warehouse and district data such as location and characteristics of associated trucks and drivers
• Time related data such as start date of planning horizon and number of weeks in the planning horizon.
• Product specific data such as unit of measure of the product being delivered
• Any other data required to accurately model unique constraints

Once optimized, users have the ability to review and assess the characteristics of the territories that are created using tables and maps to provide an enhanced visual experience. And to ensure the optimal distribution plan, users can manually move customers from one territory to another or from one service day pattern to another (e.g. from Monday-Thursday to Tuesday-Friday), if desired.

To learn more about Profit Vehicle Planner and Profit Point’s distribution planning services, visit www.profitpt.com.

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Uncovering the Value Hiding Behind Environmental Improvement Investments

Supply Chain optimization is a topic of increasing interest today, whether the main intention is to maximize the efficiency of one’s global supply chain system or to pro-actively make it greener. There are many changes that can be made to improve the performance of a supply chain, ranging from where materials are purchased, the types of materials purchased, how those materials get to you, how your products are distributed, and many more. An additional question on the mind of some decision makers is: Can I minimize my environmental footprint and improve my profits at the same time?

Many changes you make to your supply chain could either intentionally – or unintentionally – make it greener, so effectively reducing the carbon footprint of the product or material at the point that it arrives at your receiving bay. Under the right circumstances, if the reduced carbon footprint results from a conscious decision you make and involves a change from ‘the way things were’, then there might be an opportunity to capture some financial value from that decision in the form of Greenhouse Gas (GHG) emission credits, even when these emission reductions occur at a facility other than yours (Scope 3 emissions under the Greenhouse Gas Protocol).

As an example, let’s consider the possible implications of changes in the transportation component of the footprint and decisions that might allow for the creation of additional value in the form of GHG emission credits. In simple terms, credits might be earned if overall fuel usage is reduced by making changes to the trucks or their operation, such as the type of lubricant, wheel width, idling elimination (where it is not mandated), minimizing empty trips, switching from trucks to rail or water transport, using only trucks with pre-defined retrofit packages, using only hybrid trucks for local transportation and insisting on ocean going vessels having certain fuel economy improvement strategies installed. These are just some of the ways fuel can be saved. If, as a result of your decisions or choices made, the total amount of fuel and emissions is reduced, then valuable emission credits could be earned. It is worth noting that capturing those credits is dependent on following mandated requirements and gaining approval for the project.)

Global Market for GHG Credits

If your corporate environmental strategy requires that you retain ownership of these reductions, then you keep the credits created and the value of those credits should be placed on the balance sheet as a Capital Asset. Alternatively, if you are able, the credits can be sold on the open market and the cash realized and placed on the balance sheet. Either way, shareholders will not only get the ‘feel good’ benefit of the environmental improvement, but also the financial benefit from improvement to the balance sheet. If preferred, the credits can be sold to directly offset the purchase price of the material involved, effectively reducing that price and so increasing the margin on the sales price of the end-product and again improving the bottom line. If capital investment is required as part of the supply chain optimization, the credit value can also be a way to shorten the payback period and improve the ROI, or to allow an optimization to occur

So, when you consider improving your environmental impact or optimizing your supply chain, consider the possibility that there might be additional value to unlock if you include both environmental and traditional business variables in your supply chain improvement efforts.

Written by: Peter Chant, President, The FReMCo Corporation Inc.

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