December 2nd, 2013 11:09 am Category: Global Supply Chain, Green Optimization, Network Design, Optimization, Profit Network, Scheduling, Supply Chain Improvement, Supply Chain Optimization, by: Jim Piermarini
One of the pleasures of working at Profit Point is having the occasion to reflect on and write a blog about a subject that is of interest to me. Taking time to reflect on what is important, especially now around Thanksgiving and the holiday season has rewards of its own, but especially with regards to the business we are in, helping people make their supply chains better, brings rewards unique to our profession. I am pleased and thankful to be a part of it.
At the grand scale, improving supply chains improves the very heart of most businesses. It reduces waste, reduces cost, increases efficiency and profit, and reduces the detrimental impact of commerce on our world, including reducing our carbon footprint and land fill waste as well as promoting the most efficient use of our natural resources and raw materials. Profit Point routinely has an enormous impact on the business of our customers, and I personally am pleased and thankful to be a part of it.
On a more human level, the people at our customers who interact with Profit Point personnel on our projects, come away with a profound sense that they can make a difference in their company; the impact of our network studies or scheduling work or other projects demonstrates the ability of a better business process to be rolled out and actually change the business for the better. Once involved in a successful project, many of these people move up in their organizations to lead other successful business change projects. Nothing succeeds like success! I am pleased and thankful to be a part of it.
Reflecting on our part in the business world as small actors on a large stage, it is rewarding to be able to know that we have made some difference.
Wishing you the same peace of mind this holiday season, Jim Piermarini, CEO Profit Point Inc.
October 23rd, 2013 9:00 am Category: White Papers, by: Editor
Today, smart manufacturers view the supply chain as a critical element for gaining competitive advantage. Leading companies have long since gloablized their manufacturing and distribution operations. They rely heavily on enterprise resource planning (ERP) platforms to track and record virtually every transaction that occurs in the supply chain – from raw materials sourcing to point-of-sale sell-through.Without doubt, the efficiencies that have accrued through ERP are significant. When one accounts for reduced inventory, carrying costs, labor costs, improvements to sales and customer service, and efficiencies in financial management, the tangible cost savings to enterprises have been estimated to range between 10 and 25% or more. 1 2 Global and multinational concerns have reorgnized themselves – through ERP standardization – to create a competitive advantage over regional manufacturers.
While this ERP standardization has created an advantage for larger concerns, leading supply chain managers are discovering new ways to improve beyond ERP’s limitations. In essence, these supply chain ‘disruptors’ are seeking new ways to separate themselves from the pack. The functional areas and tools used by these disruptors varies widely – from long-term global supply chain network design to near-term sales and operations planing (S&OP) and order fulfillment; and from realtively simple solver-based spreadsheets to powerful optimization software deeply integrated in to the ERP data warehouse.
At Profit Point, we believe that continued pursuit of supply chain improvement is great. We believe that it is good for business, for consumers and for the efficient use (and reuse) of resources around the globe. In this survey, we set out to explore the methods, tools and processes that supply chain professionals utilize to improve upon their historical gains and to gain competitive advantage in the future. You can request a copy of the report here.
We welcome your feedback. Please feel free to contact us or leave a comment below.
October 3rd, 2013 5:54 pm Category: Supply Chain Software, by: Richard Guy
Are you frustrated with your Supply Chain Software application? Is it time to pull the plug and start searching for a replacement application? Here’s a list of signs that we often hear from customers that motivates them to start searching for better solutions.
1. Installation is REALLY difficult.
2. It takes up a lot of space on the hard drive. Several gig.
3. It often throws errors with no obvious solution on how to fix it.
4. It frequently does not work properly, and you find out later, when someone questions the results.
5. Support for new features is very slow and cumbersome.
6. It leaves the user with the sense that you don’t want to touch it, it is delicate, sort of scary.
7. It has not grown with your business; business requirements have changed, but the software has not kept pace.
8. You are searching for others in your organization to own and use the application.
Any of these signs could indicate a time to question the usefulness of the software. If you identify more than four, you need to start searching for a better software application, switch jobs, or double up on those yoga classes.
Profit Point, a leading supply chain optimization firm, adds total delivered cost and margin at the customer location-product level of detail to its supply chain network design software.
Profit Point, the leading supply chain optimization consultancy, today announced the release of an update to Profit Network™, a supply chain network design software that is used by supply chain managers all over the world to gain visibility in to the trade-offs they will face when designing or optimizing a global supply chain. In addition to several other new enhancements, Profit Network now allows users to analyze and report on the total delivered cost and the resulting gross profit margin for all products delivered to each customer location.
“With the ever-increasing availability of granular data across the supply chain, many of our clients have expressed a strong interest in analyzing and reporting on the total delivered cost of a single product or set of customer products,” said Alan Kosanksy, Profit Point’s President. “Previously, it was quite a challenge to understand how costs accumulate over time from raw material procurement through manufacturing, inventory, transportation and customer delivery. Now our customers are able to see the true total cost for each unit of product delivered to each customer. This will be a powerful tool in helping them evaluate their product and customer portfolios.”
In addition to total delivered cost, now Profit Network also enables more control over source-destination matching, as well as inventory levels by establishing minimum and maximum number of days of inventory demand.
“Profit Network software has been helping Fortune 500 companies around the world build more robust and profitable supply chains for more than 10 years,” said Jim Piermarini, Profit Point’s CEO and CTO. “Over that time, the dramatic increase in data availability across the supply chain has provided us tremendous opportunities to solve unique and critical problems in a variety of supply chain networks.”
In addition to Profit Network, Profit Point’s line of supply chain software also includes Distribution and Vehicle Planning, Sales and Operations Planning (S&OP), Production Planning, Scheduling and Order Fulfillment software.
About Profit Point
Profit Point Inc. was founded in 1995 and is now the leading supply chain software and consulting company. 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.
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.
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 NetworkTM, 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.”
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.
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.
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?
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.
July 30th, 2012 12:56 pm Category: Enterprise Resource Planning, Global Supply Chain, Network Design, Operations Research, Optimization, Profit Network, Profit Vehicle Planner, Profit Vehicle Router, Risk Management, Supply Chain Improvement, by: Jim Piermarini
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.
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.
June 22nd, 2012 3:46 pm Category: Distribution, Enterprise Resource Planning, Global Supply Chain, Green Network, Green Optimization, Network Design, Optimization, Supply Chain Agility, Supply Chain Improvement, Supply Chain Planning, Transportation, Vehicle Routing, by: Editor
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.)
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.
IDK (“I Don’t Know”)
After listening to a Freakonomics Radio podcast on NPR, the following question and blog comments emerged:
Why do people feel compelled to answer questions that they do not know the answer to?
What I’ve found in business is that we are all prone to hiding our ignorance when asked a question that we cannot answer. So even if someone absolutely has no idea what the answer is, if it’s within his or her realm of expertise, “faking” seems to be an essential part of the response.
My professor friend told me that she has learned the following from teaching MBA students: “One of the most important things you learn as an MBA student is how to pretend you know the answer to any question even though you have absolutely no idea what you’re talking about. It’s really one of the most destructive factors in business. Everyone masquerades like they know the answer and no one will ever admit they don’t know the answer, which makes it almost impossible to discover the correct answer”.
I ask: Does every question need to be answered?
Everyone expects answers to every question, especially if the question comes from someone higher up in an organization. However, not every unknown question is worth the time and resources to research. If it comes down to the choice of making-up an answer or being saddled with a research project, many people will prefer to make-up an answer. Perhaps in some situations, combined with the ego/self-image issues, every question will be answered, regardless of the person’s knowledge.
I ask: Should IDK be a legitimate response?
Perhaps, if the question has minimal economic impact on the business, and you know something related to the question, then maybe a guesstimate (an estimate made without using adequate or complete information) is fine.
But then, for significant economic impact questions …maybe it’s better to say “IDK the answer to that question, but we are studying it”, and then do the study!
As an example, management asks: Will our delivered cost per SKU increase or decrease if we add more distribution centers to meet expected growth rates and satisfy customer service levels?
The first reaction guesstimate might be “yes they will increase”, although, this might not be true.
The smart analyst will say: “Hmmm, IDK! Give me a few hours (days) to do a quick analysis, and see what the true impact will be.”
A small spreadsheet study looking at the increase in production and distribution levels combined with the increase fixed and variable costs associated with adding a few new distribution centers may be surprising. It may indicate that the increase volume and revenues and lower transportation costs will offset the increased DC costs.
This small study may also be the first in a stage gate approach to perform a forward looking comprehensive supply chain infrastructure study. A detailed strategic infrastructure study can capture the manufacturing and distribution details, including costs and constraints, generating results that will allow management to make a reliable strategic economic decision.
No field is exempt from their know-it-alls, even when the correct answer really is IDK.
I submit, if you are in an uncertain position, try the IDK approach and then offer the following response “I can check into that and find an answer for you”. You may be surprised to learn that your credibility with management will improve.
“Every act of conscious learning requires the willingness to suffer an injury to one’s self-esteem. That is why young children, before they are aware of their own self-importance, learn so easily.”
“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.
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
- Full participation in data gathering and results review by the project team and management.
- Clear definition of the key questions to be addressed and the related scenarios required by the Project Sponsor early in the project timeline.
- Availability of leadership resources within the company throughout the project to review assumptions and to ensure integrity and quality of the input.
- On time delivery of a complete set of all required data by Project Team members.
- Acceptance and agreement on the variable, fixed and capital cost assumptions of existing and potential new facilities.
- 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.
Okay. I am an anomaly. I live in Utah and drink coffee. The majority of the people that live in Utah do not drink coffee, and that is OK, but I do. So, is there a shortage of coffee Cafés in Utah? No. There are many cafés and several that serve outstanding coffee.
We have an exceptional espresso café downtown, located on a side street off of Main. They roast their own coffee and use triple certified organic grown beans. It is the type of place the local coffee lovers go to hang out and have good conversation over a morning or afternoon latté or espresso. Possibly the best coffee I have ever had. What is interesting to me is that a large percentage of the residents in my area do not even know that this café exists.
So what is my point? When it comes to outstanding services or products most people are unaware of what is available, primarily because it does not fit into their lifestyle or what they’re accustomed to. I believe you can transfer this similarity to the business world. Manufacturing logistics and transportation people become accustomed to doing things a certain way. Over time they may become blind to ideas for improving the supply chain. They are unaware of an exceptional Supply Chain Café, even when it is located just seconds from a combination of keystrokes and Google.
It is not their fault they are missing the best latté available. We, as consultants, who prepare those delightful solutions from the Supply Chain Café menu, have probably not done the finest job of promoting our services and software to your neighborhood, but that is changing.
There are many empty cups in the supply chain, waiting to be filled with successful solutions. Supply Chain and Logistic managers tackle difficult supply chain problems every day, but they are so focused on getting their job done and making it through the day that they have little time to think of alternatives that may improve their processes and well being. I am not sure how we can help everyone, so let’s focus on the window shoppers. These are the ones that are aware of the café, but have never been inside. Maybe you are one?
If you are reading this blog, then you must be a window shopper. I am guessing you are looking for a better espresso. OK, you found “Profit Point”, although you may not know what we do. Guess what? Help is on its way. We can share our menu with you. We just published four videos that will introduce you to the Profit Point team and what we do. Embrace three minutes out of your day, select one of the videos, and watch it. Learn how we help companies improve their supply chain, by serving the best coffee with a smile.
Yes, you can improve your supply chain with our help. The supply chain solution that you are looking for, is about to be yours. And if you place an order, we can fill your cup to the top, with the “good triple certified” stuff. If you cannot seem to find that special item on our Supply Chain menu, then no fear, we love special orders.
So, is there a shortage of Supply Chain Cafés? No. You just need to find the one that serves the optimal latté. I know it’s out there somewhere.
When making infrastructure planning decisions regarding adding new facilities, or adding capacity to existing facilities, you will want to take into account a variety of facility costs to ensure you make the right decisions. These costs include…
- variable cost, dependent on the volume through the facility
- operating fixed cost, to cover costs such as taxes, security, leases, etc.
- depreciation, based on the life of the equipment, and
- cost of the capital used to construct / purchase the facility
In an optimization model you can capture all of these costs separately, or perhaps you will want to consider the fixed costs as a “lump sum”.
Here are two ways that you could build the cost of capital into the decision-making process:
- Add a Capital Recovery Cost to the objective function, to reflect the cost of the capital required to build or expand a facility. One way to do this is the approach used in the Microsoft Excel PMT function, which asks for four inputs to the calculation of recovery cost for a time period:
- capital cost of the asset to be added, e.g. a plant, production line, distribution facility, waste water treatment facility, etc.
- useful life of the asset - the entry here for the number of time periods should be consistent with the frequency of time in your model
- salvage value at the end of the asset’s used useful life, if any
- capital cost charge (interest) rate to be charged in each time period – again, the entry here should be consistent with the frequency of time in your model. (This number could be annual, monthly, or based on another frequency, depending on how you have defined your model.)
The Capital Recovery Charge can be thought of as a loan repayment for the amount of capital required in purchase and install the facility. Excel has help files describing the details of the PMT function, so we will go into more detail here.
- Use Economic Profit as the objective of the model, or as a measure that you use to compare alternative solutions. Economic Profit is your standard accounting profit, less the opportunity cost of capital invested in the business. The opportunity cost is the return that the company would have been able earn if it had invested in the next best alternative project. For instance, if you consider a future alternative where
- the accounting profit for the time period (say, year) is 100, with the additional asset, but
- the asset has a capital cost of 1000, and
- the opportunity cost for capital is 15% per year (the company could have received a 15% return by investing the capital elsewhere) , then
- the Economic Profit for the year is 100 – .15*1000 = -50.
If you are minimizing cost rather than maximizing profit in your model, then you can calculate Impact on Economic Profit for a given alternative, adjusting the operating costs from the model for the effective tax rate, and subtracting the capital charge.
Including the cost of capital appropriately will allow you to present a more complete analysis.
“Going Green” is becoming a higher priority for companies large and small, as regulatory bodies and consumers around the world push for more readily-available information on corporate carbon footprints and companies’ plans to control / reduce their carbon emissions. But how do you do this most cost-effectively? Optimization is a tool that can lead to better “green” decision-making.
First, let’s review of the types of decisions that companies are making today. Here are some real world examples from recent press reports…
Dole Food Company, the world’s largest producer of fruits and vegetables, has committed to make its banana and pineapple business in Costa Rica carbon neutral over the next decade. Dole social responsibility officials Sylvain Cuperlier and Rudy Amador recently highlighted their priorities in achieving this in an interview :
- measurement of current carbon footprint and activities, such as the use of fertilizers,
- research into and collaboration on mitigation and sequestration projects, and
- improved operations, including increased use of rail transportation on land and more energy-efficient refrigerated containers for maritime shipments.
Tyco Waterworks, a worldwide supplier of water system equipment based in the UK, has documented its consolidation of multiple manufacturing plants into a single Manufacturing Centre of Excellence for meter boxes, plastic injection molding and gunmetal products in Bridgend, South Wales. Having all its manufacturing under one roof results in a reduction in the company’s overall energy consumption and transport, with a resulting positive impact on its carbon footprint (as well as giving operational efficiency benefits.)
Xerox Corporation, which provides document services and equipment around the world, maintains a fleet of 5,000 vehicles used by its technicians in the United States as they respond to customer requests for service. Tony Rossi, Xerox’s manager of programs and operational support, said in an interview that his programs, which have reduced fuel consumption over the last several years by 10%, and have a goal of a 25% reduction, can be grouped into four categories:
- pairing each driver with the best-sized vehicle for his / her needs,
- improving the fleet’s fuel efficiency as vehicles are replaced,
- tracking driver routes and distances traveled on a daily basis, and
- using GPS systems to match available technicians against pending requests as they are dispatched during the day.
The common thread? These companies have made progress towards their cost and carbon goals by
- understanding their current situation, and what their options include,
- implementing more efficient operations over their existing supply chain (thus generally using less energy and lowering their footprint), and
- making the most effective capital additions to their supply chain systems when justified.
Optimization techniques can allow you to identify the best solutions that are possible in improving efficiency and implementing capital projects. Thus you can make the best choices for meeting your goals from the options that you have at hand.
In making decisions for a manufacturing-oriented supply chain like the one described for Tyco Waterworks above, a network design tool like Profit Network can help you evaluate the benefits of:
- keeping or consolidating existing facilities, as well as,
- opening potential manufacturing sites, taking into account
- capital costs,
- shutdown charges,
- manufacturing rates and costs,
- freight costs, and
- and a host of other costs and constraints on operations.
Profit Network uses a combination of linear and mixed integer programming and related optimization techniques to guarantee that you evaluate a range of solutions and identify those that are best for your particular needs. Potential decisions that can be evaluated include both operational changes and choices among proposed capital projects that will lead to greater efficiency.
Xerox and Dole have scheduling problems that can be solved by both optimization and heuristic means. The Xerox technician dispatching problem is a variation on the mathematically well-studied Assignment Problem, which can be solved using “greedy” algorithms (which pick off the “low hanging fruit” but are not guaranteed to give the absolute best solution) or more comprehensive methods that can give the best solution, at perhaps a longer solve time. Transportation scheduling problems again can be solved through these methods. Using the technology of the 21st century will be critical for businesses to meet their “green” objectives. Optimization technology is one of these new technologies that will help you reach these goals.
This article was written by Dr. Gene Ramsay, Profit Point’s Infrastructure Planning Practice Leader. To learn more about Profit Point’s Supply Chain Sustainability services, please call (866) 347-1130 or contact us here.
Image courtesy of Gavin Schaefer.
North Brookfield, MA (PRWEB) February 4, 2010 — Profit Point, a leading Supply Chain Optimization company, today announced the introduction of Profit Network 4.5, a major upgrade to their award-winning supply chain network design and modeling software. The software update includes a combination of new features and technical enhancements which combine to support richer scenario testing for larger supply chains over a longer time periods.
“With almost 10 years in the field, Profit Network has been put to the test against some of the world’s largest supply chains,” noted Jim Piermarini, Profit Point’s Chief Technology Officer. “But best practices have expanded over time, so decision makers are looking for more integrated and comprehensive modeling solutions.”
Profit Network 4.5, which is used by many Global 2000 companies to model supply chain plans, has been enhanced to integrate better capital planning, greater control over facilities decisions and improve tracking and modeling of sustainability initiatives. The modeling software now includes improved options for integrated capital spending, facilities decisions, natural resource planning and emissions mitigation.
“Ultimately, the number one priority for our customers remains capital planning and return on investments” said Piermarini. “A company’s infrastructure plan will dictate 80% or more of future costs. So, we added several features that help analysts understand the capital impact of decisions to control costs and maximize the long-term logistics benefits.”
The software update also includes several technical enhancements to improve planning for the largest supply chains, over longer periods of time. “We’ve added a new core optimization process into Profit Network 4.5,” stated Piermarini. “Customers will now have 50% more addressable memory capacity, which will yield deeper visibility in to larger networks and the long term tradeoffs that are being modeled.
To learn more about Profit Network and Profit Point’s supply chain software, visit www.profitpt.com.
About Profit Point:
Profit Point Inc. was founded in 1995 and is now a global leader in supply chain optimization. The company’s team of supply chain consultants includes industry leaders in the fields infrastructure planning, green operations, supply chain planning, distribution, scheduling, transportation, warehouse improvement and business optimization. Profit Point’s has combined software and service solutions that have been successfully applied across a breadth of industries and by a diverse set of companies, including Dow, The Coca-Cola Company, General Electric, Logitech, Sealed Air, Bridgestone and Toyota.
The new year is upon. But for supply chain professionals like you, many of the challenges from 2009 remain.
To help our clients navigate the uncertain future, we conducted a survey in 2009. The survey included supply chain decision makers from large multi-national organizations to small domestic concerns.
Our goal was to extract the top risks and opportunities for 2010 and beyond. Our final report for the survey has been compiled in summary form and highlights several of the top keys to success. You can download the report by clicking the link below:
I hope you find value in the report. And, as always, if you have questions or concerns about your supply chain, please feel free to call us at (866) 347-1130.
President, Profit Point, Inc.
Below is a video interview with Ted Schaefer, Profit Point’s Director of Supply Chain Services, discussing supply chain optimization including cost reduction and supply chain sustainability issues for greener decisions with Xpress Optimization Suite.
In this video interview with CSCMP’s Supply Chain Quarterly, Ted Schaefer, Supply Chain Practice Leader at Profit Point, offers practical advice on how to make supply chains both “green” and profitable.
Watch the video interview to learn more about the ways leading companies are cutting costs and emissions: