November 25th, 2013 9:12 am Category: Supply Chain Optimization, by: Editor
We found a great article by Adrian Gonzalez entitled 5 Reasons Why Excel is Champ of Supply Chain Apps. Over the past 15 years, we’ve seen so many companies relying on Excel to make early stabs at supply chain optimization. And, since we recognize that you supply chain “disruptors” will do just about anything to change the status quo to move the needle on continuous improvement, we applaud you.
In fact, Excel – coupled with it’s relatively powerful optimization engine, Solver, from our partner Frontline – is a great starting place for identifying supply chain optimization opportunities. It’s extremely accessible, virtually free and easy to collaborate, since everyone has it. So long as your not looking for near-real time planning and decision support, the optimization features are quite useful.
Of course,when you’re ready to take it the next level, there are some very good reasons to move beyond Excel. First and foremost, connecting your supply chain optimization software to your ERP data warehouse allows you to get a much more granular level of detail. And, a direct connection means that you’re not wasting hours – or sometimes days – extracting and shaping the data into a consumable form. It’s just there and ready to go!
Below is Adrian’s top 5 list as well as some of the limitations that she identified. There’s also a link to the complete article, which is well worth reading.
“I believe there are five main reasons why Excel remains the reigning champ of supply chain applications:
- It’s is easy to learn and use.
- You can quickly and easily configure it to your specific needs and preferences.
- It’s highly portable: you can use it almost everywhere, and share it easily with others.
- It’s ubiquitous: Almost everybody has it and knows how to use it.
- It’s inexpensive.
Of course, Excel has some significant drawbacks that limit its usefulness and value as a supply chain application, such as…
- You’re working with static data
- A macro is not the same as an optimization engine
- It’s not integrated with execution tools
- You often end up with multiple versions of the truth”
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.
This month’s IndustryWeek features an article by Alan Kosansky and Ted Schaefer entitled Margin-based Supply Chain Optimization.
“To effectively implement margin-based supply chain optimization, it is important to have three key components in place: data, optimization technology and alignment with strategic business objectives.
Margin-based supply chain optimization is a new business process based on two key business priorities: 1) the desire to deliver more high profit products to customers, and 2) the ability to stop serving customers and products with low profit yield. This supply chain decision support process quantitatively shows companies which customers to serve and what products to produce in order to maximize profit and margin. For companies with complex supply chain operations, this is often easier said than done. Recent advances in the availability of data and optimization modeling, however, enable a growing number of companies to implement more efficient and effective supply chain systems.
A company’s portfolio of customers and products typically changes more quickly than the assets used to meet the customer demand. These situations include changes in the macro-economic environment that precipitate significant increases or decreases in customer demand, shifts in a company’s product portfolio, development of new markets, or changes in the cost to produce and/or deliver products or services. In each scenario, margin-based supply chain optimization is a key tool to help companies manage supply to achieve maximum profitability.
To effectively implement margin-based supply chain optimization, it is important to have three key components in place. They are: data, optimization technology and most importantly, alignment with strategic business objectives.”
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.
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.
- Define the test case, with the expected results
- Construct the test data
- Build or configure the application
- 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:
- Construct the test case with the test data
- Build or configure the application
- Set the expected results using the results of the first pass build
- Re-factor the code and test until all test are passing
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
Here’s an audio interview with Dr. Alan Kosansky on the “Future of Supply Chain Management”.
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.
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?
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.
At the risk of sounding like a supply chain nerd, here at Profit Point, I get a similar sense of exhilaration in enabling our clients to increase the velocity in their supply chains by implementing decision support tools that enable faster and better decisions.
These decision support tools enable faster and better decisions in at least the following 3 ways:
1. Faster visibility to the data – By having a software tool that holds all the data needed to make a particular decision with automated interfaces to source systems, our users don’t have to spend countless hours combing through multiple spreadsheets and other software systems to get the data they need. We bring all the data needed together in one place for the user to be able to make effective decisions.
2. Faster understanding of the data – Supply chain decision support tools have huge amounts of data coming in and going out of them. Making sense of it all can be challenging. Typically what we do is build tools that allow the user to sort through all this data by:
a. Having graphical user interfaces that make it easier to understand what is going on. After all a picture is worth a thousand numbers any day of the week.
b. Show only the exceptions or problems that need to be resolved to help the user focus on what needs to be changed.
3. Faster processing of the data – Oftentimes we will automate tasks that are menial and time consuming or if the task is very complex it may be appropriate to employ an optimization or heuristic solution approach to speed getting to a feasible or better solution. We like to call these “Power Assist” tools that greatly ease the burden on the user while still giving them ultimate control over the decisions that are made.
Do you feel the need for more speed in your supply chain? Give us a call so we can discuss how we can help to get you moving faster.
A husband, two kids and a golden retriever later… I am back to implementations in Supply Chain planning and scheduling. To my surprise, the same challenges I encountered 10 years ago remain in force today: data, defining business processes, data, implementing software, data, training people, data, supporting the change to a new system and data.
Data collection remains one of the cornerstones of success of a supply chain planning or scheduling implementation. Though scores of data may exist in a company’s business, harnessing it to feed into a planning or scheduling model can be extremely complex and time consuming. Interestingly, the data collection process often drives an elucidation of manufacturing practices and process flows, and clients learn what they do and don’t know about their business. This may seem backwards and risky in terms of getting things out of order. In a perfect world, a thorough understanding of manufacturing and business processes would pave the way towards building an Advanced Planning and/or Scheduling System. In reality, they often happen in tandem and are evolutionary in nature.
Deciding how data will be housed, derived and propagated early on in an implementation will pay off in the long run. Establishing a systematic, automated way to update and propagate data is equally important as the decision of what software system to use. It is worth the investment to take the time to put this automation in place as a greater and greater number of products are added to a system the data will remain manageable and scalable.
From PC to Cloud, emails to tweets, networking happy hours to LinkedIn, it is nice to know some things stay the same.
Sales and operations planning (S&OP) is an integrated business management process that enables a company to continually balance and manage the supply chain supply and demand to achieve its strategic and tactical business objectives. More and more business leaders are relying on S&OP to align and improve decision making across the disparate parts of their organization. And, many companies are still adopting and improving the techniques and tools that they use to improve S&OP.
So this year, we conducted an S&OP Survey of key decision makers to learn more about their challenges, concerns and expectation for 2012. Business leaders from a variety of companies and industries were polled. Here’s what we learned:
- Many companies lack the metrics needed to capture the benefits from S&OP
- Scenario and sensitivity analysis is the tool of choice for S&OP planners who understand that sales forecasts are imperfect
- More companies are beginning to collaborate with suppliers and customers to improve S&OP
- For many companies, point-of-sale (POS) data may be the key to effective sales and operations planning
To read the complete report, including our conclusions, click the link below:
More than a decade has passed since businesses started using Enterprise Resource Planning (ERP) for managing data and transactions throughout the supply chain. Traditionally, ERP systems have provided transparency and insight into transaction-level data in the supply chain that support important business planning activities. Now, a new generation of applications is being developed to help fill the gaps between general business planning and business-specific, tactical and strategic decisions. These ERP-connected applications offer supply chain executives previously unavailable analysis and insights into the decisions that directly impact customer service, profitability and competitive advantage.
Supply Chains Differences
Supply chains are as different as the companies and people that run them. Some companies view their supply chain operations as a “utility” that is expected to function without any investment in intellectual capital. These organizations are content to rely on industry best practices in their supply chain operations and follow the leaders (or the features that are added by ERP software providers) in supply chain improvement. Other organizations see their supply chain operations as a strategic opportunity to develop a competitive advantage and increase market share. They know that with some small departures from the norm and a modest investment in intellectual capital, supply chains can provide enhanced performance to the business. These companies understand that there are opportunities for creative and unique ideas in the supply chain to improve company performance and achieve business strategy objectives.
Today, many C-level executives see their ERP systems as key enablers to company productivity, and for the most part, they are correct. Since ERP systems perform many valuable functions, there is a natural assumption that they can handle whatever business strategy the company adopts. However, new business ideas by definition run the risk of stressing the ERP system features beyond their ability to cope. Usually these failures are discovered only during the implementation of a new business strategy. So what happens when the ERP system fails to support the new business strategy in certain critical details? Those working in the trenches know this scenario all too well. But, what can be done to implement strategic supply chain initiatives when ERP is not equipped to handle business-specific initiatives?
Making the ERP Work
There are three possible approaches for implementing supply chain planning activities that offer a company a competitive advantage:
1. Figure out how to get the ERP system to do it. This approach works well if the company’s needs align well with current industry practices supported by ERP systems. Otherwise, companies may find themselves going down a path that consumes significant resources for a poor fit in the end. Companies that adhere to this path typically do so in part because there is a strong C-level edict in favor of simple, clean upgrades for the ERP system. Faced with this, the IT organization has enormous power to shape the nature of the supply chain operation to fit within the established ERP norms, and thus can act as a barrier for business innovation and supply chain improvement.
2.Modify the ERP system to provide new functionality. This is an approach often promoted by IT organizations committed to supporting the fewest number of tools. While this is an important cost management objective, it is important to understand the full cost to implement and support the system over the long term. What can be accomplished is often limited by the lack of flexibility in large ERP systems and IT organizations. Since ERP systems are mission-critical systems, the support and maintenance of the core functions are of paramount importance. This task, placed on a limited IT staff, leads to large backlogs of enhancement work and long queue times. And while IT departments are well-equipped to manage their primary assets, few if any IT departments have the requisite domain knowledge to cross over into supply chain optimization. Given long wait times, organizations will often choose the simplest approximation of the business change that can be ushered to the top of the queue. This approach can result in a quick-fix style of strategy implementation, rather than a priority-based feature development, and may leave the most important aspects of the initiative lingering in the queue.
3. Add an integrated solution to the ERP system that replaces one or more functions that are needed to achieve the business strategy. This could be from an out-of-the-box third-party provider, or for full competitive advantage, a targeted or custom supply chain application that integrates with the company’s ERP data. This approach has the benefit of including priority-based features that the current ERP system lacks, and the additional benefit of avoiding the ERP enhancement queue. The downside, however, is that it suffers from the stigma of being yet another application and not the ERP system itself. This usually presents a hurdle that requires a careful analysis to understand the total cost relative to the strategic benefit. While not all business changes will overcome this roadblock, there are good reasons to look at this approach. These include:
- Ensuring a tight fit between the business strategy and the tool execution
- Minimizing the cost, overhead, and extra setup and maintenance in un-needed functions from a shrink-wrapped general purpose tool
- Providing the marketplace with a specialized and unique operation of the supply chain for competitive advantage.
Example from the Field
A leading consumer electronics company with about $2bn in annual sales implemented an integrated solution to its ERP system to manage its order fulfillment process for competitive advantage. The company had recently modified its corporate strategy to increase retail sales through its “big box” customers (Walmart, Best Buy, Staples, etc.). However, key service level agreements were not being met for these customers due to lower than expected order fulfillment measures. A simple inventory analysis recommended large increases in the stock required at the warehouse, with some method of segregating inventory for each big-box customer so it could not be taken by orders from other customers.
In this case, one of the leading causes of low service for customers was that they ordered “just-in-time”. These JIT orders were not being given any priority over other customers’ orders with longer lead times. The company noted that these important customers may have provided accurate plan information, but that was not being used to assure them any better service. The analysis recommended that separate stocks of inventory be set up based on the big-box planning information, and that other customers not be allowed to take from those inventory locations. This would result in a large increase in overall stocks, but should achieve the desired increase in service levels.
One manager questioned this recommendation, wanting to know why the ERP system did not use the big-box planning information to appropriately manage the company’s service levels. She also questioned what could be done to avoid increasing her inventory risk and yet still achieve the business strategy. This is a question many managers face when their analysts say that to improve service you need to increase inventory levels. Often there are alternatives. This key manager’s insight set the path for her company to make a significant shift in their supply chain operations, with remarkable benefits. What follows will answer the question: Can I raise the service level of my key customers without increasing my inventory and capital risk? The short answer is, “yes”. Significant service benefits and risk reductions can be achieved, but only if you are willing to deviate from your ERP’s standard approach to implementing key supply chain initiatives.
The industry standard approach for assigning available inventory to open orders is to use a FIFO (first in, first out) approach. This approach prioritizes orders based on when the order was received and assigns on-hand inventory to those orders that were received and entered into the system first. While this approach has a degree of fairness to it, and is available in all ERP systems, it did not align well with the business objectives of this company. It actually penalized key customers who issued JIT purchase orders while giving ample planning information. These JIT orders would have to wait until all the older orders, from non-key customers, were allocated before they would be assigned any inventory.
The standard ERP process does not take into consideration the customer’s strategic importance or their planning information. Given this FIFO process, the internal recommendation makes sense: set up separate safety stocks for each big-box customer (based on their planning information), in separate inventory locations, and make a rule that directs big-box orders to their separate inventory.
But having separate safety stocks violates the principle that more customers need lower inventory together, than each does individually. Pooling the inventory helps to avoid unnecessary capital risk. The standard ERP FIFO inventory assignment process could be replaced with one that met customer needs more effectively.
The company embarked on a project to take into account several important factors when deciding how much inventory to assign to each order:
- The priority of the customer
- The amount of inventory actually in the sales channel of the customer, and
- The planning information that the customer shared with the company.
Customer priority is a key and strategic factor in deciding which customers receive product, when inventory availability is limited or delayed. This business need meant that strategic and high-volume customers should typically be serviced before others. However, this may not be the case if a strategic or high-volume customer happens to be sitting on a lot of inventory in their channel. In these cases, it may be preferable to share the wealth with smaller volume resellers to maximize the sell-through to retail customers. Moreover, these rules may apply differently for each SKU in a manufacturer’s product line.
The business rules to implement these sorts of complex trade-offs can get complicated. If one wants to retain a certain amount of flexibility in these rules, then the ERP system is a poor place to make these decisions. However, since most, if not all, of the data resides in the ERP system, these decisions must be tightly integrated with the data and transaction handling within the ERP system. So an application was constructed to manage the inventory assignment process in this way to more closely match the business strategy. The new application is run several times a day, extracting needed info from the ERP system, making the assignment of inventory to all open orders, and sending back the info to the ERP system.
Using this integrated solution, overall service levels for these key customers were sharply increased, prompting several supply chain awards from these big-box customers. As a result of the increase in service level, Walmart (a strategic customer) was so pleased they chose to increase their orders of all this company’s products by 100 percent. The overall inventory did not increase.
The new method demonstrated that pooled inventory was an effective approach to containing inventory levels. In subsequent versions of this application, the integration of point of sale data has allowed even more control over the inventory in the various channels to market. As a result, this company has declared this application a business-critical application. It overcame the hurdle, and the application can defend its spot on the chart of critical business applications alongside the ERP system.
Integrated Solution Success
Using an integrated solution to the ERP system was a win-win approach that allows the business the flexibility to manage order fulfillment for competitive advantage while maintaining the benefits of centralized data and the strong transactional handling capabilities delivered by ERP.
But order fulfillment is not the only area where there is opportunity to supplement the strengths of ERP with flexible and powerful business optimization processes and tools. Other areas where leading companies have decided to enhance their ERP capabilities include optimization-based infrastructure planning, sales and operation planning, distribution route and territory planning, transportation bid optimization, transportation fleet planning, and production scheduling.
These are just some examples of where complex and/or strategic business rules can provide competitive advantage through improved supply chain performance. While ERP systems remain the backbone of all successful large business operations today, they are not the only path available to companies who desire to apply innovative approaches to their business and supporting supply chain activities. Global enterprises that seek a competitive advantage now have the opportunity to leverage their ERP investments by integrating optimization-based solutions to key business strategies.
At Profit Point, we often repeat the mantra “People, Process, Technology.” All three are important for the kinds of projects we work on. You have to have good systems (the technology part) that support good work processes and people that follow the process and use the systems. If your people are not committed to following the process and using the systems, you are going nowhere fast.
Recently we were discussing with a senior manager at one of our clients what makes for a good Sales and Operations Planning Process (S&OP Process). Being someone who is more of a process and technology guy I was thinking that he might say something like “You have to have a well thought out work process that is clearly communicated to everyone involved” or “You have to have a system that is easy to work with that supports the work process well.” WRONG!
The first thing he mentioned was that senior management needed to be openly committed to the process and systems. He illustrated this for us by recounting what another senior manager at this same client said during an S&OP meeting with a large group. The group was going back and forth discussing a “potential” order from a customer and this particular senior manager said “If it’s not in the system then it’s a rumor and we don’t plan and schedule for rumors.”
As you can imagine, this cut down on the chatter in the room quite quickly. This client had spent a lot of time and money developing processes and systems that worked well and those two things are necessary but not sufficient. You have to have leadership that says “We have a work process to follow and a system to use to support executing that process. Follow the process and use the system.”
Next you have to have people who do exactly that! If this is not happening then as I heard from another executive “Either the people will change or the people will change!”
You have to be able to trust the data in the system but really at its root this boils down to trusting the people who entered the data in the system. As I was reminded, this starts at the top!
At Profit Point we are in the ‘Science of Better’, and we are always looking for new ways to do business, both for our clients, and for ourselves. When we started, we had the challenge of being a virtual company, that is, we have never had a corporate office space. Since 1995, each of us has always worked from home. While there are numerous benefits of this style of company architecture, including having a family that actually knows who you are, and keeping the company’s overhead to a minimum, it also has its drawbacks. Like forcing each person to make the deliberate decision about when to start work, and harder still, when to stop work each day. We knew when we started this company that we wanted to keep our overhead costs low, so a virtual office seemed like the natural choice.
More recently, we have been faced with another challenge, how to reduce the cost of the projects we do. Projects in the supply chain business require a certain amount of industry and company specific knowledge. Until recently, we had been building into our projects ample on-site time where the project team could gel and collaborate and build the trust that is needed for the free flow of ideas. But the world has changed, and we have changed with it. No longer are big travel budgets a normal part of the projects we see. So the challenge was: how to reduce the travel expense line item, without sacrificing the project speed or quality?
In the consulting business, there is sometimes no substitute for ‘face-time’. So travel to the customer site perforce happens. Over the course of the last 15 years, I have seen a marked drop in the amount of time that we need to travel, going from 60-70% a decade ago to less than 20% currently, and this has been brought about primarily by two factors: 1) Companies simply do not want to pay the travel expenses. Since 9/11, most major companies have been slashing their travel budgets, and expect their consultants to follow suit. One particular project comes to mind where I had seen travel expenses that were as much as the consulting bill each month. But in general, we see pressure to reduce the travel expenses that are generated by projects across the board. 2) ‘Remote Touch’ Technology has provided the means to travel less. There are some great remote desktop control tools that allow two or more people to have a telephone or VOIP conversation, and look at the same computer screen, to discuss and collaborate on ideas and tools. These web based telephony and remote control tools have eliminated the need for travel to a greater extent than you might think. Many of our projects today have only two face to face meetings, one to kick it off, and one to present the results or close it out. Some of our clients are handled successfully without any face time. I must say though, that in our experience, low face-time projects only work well within the culture and language: that is, when language and culture barriers exist in the project team, face-time is the best way to bridge these gaps, and mitigate the risk of project overruns and delays.
In business, technology comes into being as a means to enable better business processes. The processes that we use that are enabled by this remote touch technology includes an agile approach to solving business problems or developing software solutions. We use several readily available web based tools every day in our business, and boy have they allowed us to reduce the travel expenses. These include:
This is the best remote touch tool out there in our opinion. Until a robust free app comes along, this will remain the best value for the money. The best part of the app is the recent addition of the integrated VOIP, where you can use a head set (I would recommend the Logitech ClearChat PC Wireless Headset: http://www.logitech.com/en-us/webcam-communications/internet-headsets-phones/devices/4226) to join the integrated telecon line. This has the advantage of freeing up your phone, and being instantly connected to the telecon as soon as you start it. No more long telecon numbers with their passcodes! We use this many times every day, and it is the primary reason why we can travel less.
This is a simple to use and secure web based file storage and sharing application that fosters and supports collaboration with people both in your company and externally. We love this app, and my clients seem to as well. Just drop a file into this app, and share it securely with anyone with an email address. Use it when email attachments just will not do, due to size limitations, or just when the email hassle is too much.
This is a terrific project management tool that is designed for agile projects, and makes it simple to create and manage user stories for tool development. While inviting new members can be a hassle (since their email seems to get caught in many spam filters), once they are in, these folks have made a stellar user interface to manage the tasks in a project of nearly any size. Use it to track bugs too. We have done several projects using this tool. and we will be using it for many more. Great tool.
If you like to look at data, like we like to look at data, then you will want to look at Tableau. You can think of it like a pivot table / chart on steroids. You open it, connect to you data, (whereever or what ever data you’ve got, it can connect to it), and then you start to explore your data like you’ve never been able to before. Like a pivot table, you can drag and drop fields, aggregate data along dimensions, and make sums, etc, but the really cool part of Tableau is the part where it suggests new ways of the looking at the data. Go ahead, make maps, heat charts, time phased graphs, whatever. Then you can assemble the graphs into a dashboard. Dashboards are the best. Want to see a ton of data distilled down into a very compact visually stunning view suitable for management? Get a copy of Tableau, and you can make that view in minutes.
Used appropriately, these tools, and others like them, have enabled us to travel less, and work faster and better. (and more!)
If you have other great apps like these that enable better business processes, I would love to hear about them.
This month, Manufacturing Today magazine published an article entitled Supply Chain: Time to Experiment, which was co-authored by Dr. Alan Kosansky and Dr. Joe Litko of Profit Point. The article discusses how executive-level business decisions can include a broad range of interconnected variables leading to an extensive array of options and discusses how business leaders can gain exceptional insights in to future scenarios.
Read the complete article here.
Supply chain optimization consulting firm selected as a top solution provider for supply chain decision makers.
Profit Point, the leading supply chain optimization solution company, was awarded the Supply & Demand Chain Executive 100 award for its role in improving supply chain decision making. Read the rest of this entry »
This month, Chief Executive magazine published an article entitled Increasing Value Across the Supply Chain, which was co-authored by Dr. Alan Kosansky and Jim Piermarini of Profit Point. The article discusses how optimization technologies can be used to maximize supply chain value by implementing more sophisticated approaches to standard practices such as inventory and asset management.
Read the complete article here.
Many of us have worked with companies that provide large ERP solutions. Some of these experiences have been successful and others somewhat less than ideal. If you work in the manufacturing, supply chain, logistics areas, then you realize the vast importance of having access to meaningful data, although implementing a large ERP system does not necessarily mean you can get to that data. It has been my experience that having the data available and having the ability to get to that data and using it to perform strategic or tactical analyses may be challenging.
I recall a situation that happened to me many years ago. I was working for a large corporation that maintained a large database on its customers. All of this information was on a mainframe. To get access to the data so that we could perform analyses and generate reports required communication with the MIS department. We would schedule a meeting with one of the analyst to discuss what data we needed access to and what reports we required. The analyst would routinely tell us to fill out a job request form number 777. Then, this form need to go through several levels of management approval. If the request made it through the approval process it was put on the development schedule. Typically from start to end the process would take several months. In today’s world that would not be acceptable. Read the rest of this entry »