Category Archives: Decision Optimization

Getting Ready for the Recovery … Whenever It May Be

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Industry Week recently ran an article on “repositioning your business for the recovery phase” that noted that it could be years before volumes return to the near record highs of 2007 and that many companies will need to restructure their operations if they wish to return to profitability. Specifically, companies need to focus on activities that are not dependent on volume to be profitable. The article recommends the following:

  • Design Cost Optimization
    Focus not on the design process but on design changes that can reduce production costs. This will reduce costs across the board.
  • Make vs. Buy Decisions
    Rethink what you make vs. what you buy. Now might be a good opportunity to offload non-core product design, process engineering, and quality control activities that are inefficient and costly for you but more efficient and affordable for a (new) strategic supplier.
  • Fixed Asset Productivity
    Optimize the effectiveness of your fixed asset portfolio. Increase equipment utilization and effectiveness, decrease required warehouse space, and get rid of, or lease out, unused or unprofitable assets.
  • Reduce Working Capital
    Up to 83% of working capital in your supply chain is needlessly tied up longer than it needs to be. It will take you a while to identify and make the necessary improvements to make your efficiency, so start by making sure you’re not paying more interest and fees and working capital loans than you need to. If you’re not sure how good your bank’s offer is, try The Receivables Exchange and see if you can get a (much) better offer.
  • Re-Analyze Your Business Model
    What was your optimal business model last year might not be your optimal business model this year. Re-analyze your products, markets, and regions and change your strategy accordingly.

Which is a great start, but don’t forget the basics:

  • Analyze Your Spend
    Do a real spend analysis, possibly with the help of a leading spend analysis consultancy, to find out not just where you’re spending money (direct, indirect, operations, etc.) but where you have the biggest cost savings opportunities.
  • e-Source
    e-Source those direct and indirect categories with the biggest cost savings potential.
  • e-Procure
    implement e-Procurement to save time and money … a good solution can automatically insure that you don’t pay more than the contracted price or miss an early payment discount you intended to take advantage of

Does Scenario Planning Trump Location in Supply Chain Friendly Network Formation

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A recent Industry Week article on “how to develop a supply chain-friendly network” stated that scenario planning considerations can be just as important as location. The rationale is that, in response to the 2008 fuel spikes and recession, many companies are repositioning their logistics locations closer to end users and increasing inventory levels to insure full truckload shipments in a knee-jerk reaction. As a result, inventory overhead costs are climbing to unacceptable levels and product obsolescence is becoming an even greater risk than before. And the article makes a valid point.

But is real estate scenario planning, that addresses the likely results of adding to or changing your network sites, the answer, or is it full fledged network optimization backed by decision optimization technologies? While, as the article suggests, you need to look at and collect labor availability and rate, government incentive, required inventory level, transportation mode and rate, and warehouse operating cost data for each location under consideration, the only way you’re going to truly be able to understand the total cost of each potential decision and select the best, lowest-cost, network design that meets your service level requirements is with a network optimization tool as there’s just no way your spreadsheet calculations are going to capture all the costs, constraints, and business rules you’re going to identify in your scenario analysis. So while scenario planning is important, ultimately, the answer is selecting the best locations, and I would submit that can only be done with the aid of good network optimization tools.

If There’s No Uncertainty, You’re Not Managing Your Inventory

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As noted in a recent Industry Week article on “Inventory Optimization” that noted how it’s all about uncertainty, these days, volatility and uncertainty pummel the network of suppliers, producers, wholesalers, distributors, and retailers that convert raw material to finished products for our homes and offices. That supplier in China may ship you 100,000 units this week, but only 20,000 units next week. That shipment may take 10 days to arrive or 20. Demand can be steady for weeks, then spike or drop unexpectedly, confounding the forecasts and causing excess inventories or product shortages. There’s uncertainty everywhere, and if you’re not managing it, you’re just waiting for a disaster.

The only way to thwart the problems caused by volatility and uncertainty is to gain visibility into all the factors needed to improve inventory decisions across the supply chain. The best way to do this is to implement a multi-echelon inventory visibility and optimization solution that keeps track of inventory levels, demand changes, real-time shipment updates, and uses inventory optimization to recommend optimal updates to forecasts, inventory levels, and shipments. Such a solution can often reduce inventory by 20% to 30%, improve service levels, ad cut cycle times by 10% to 20%, especially when guided by an expert that uses the visibility to make manual adjustments as soon as new information is available.

What You Really Need To Know About Workforce Optimization

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A recent Industry Week article on “what you need to know about workforce optimization” did a great job of summing up what you really need to know in one sentence.

Sustained commitment to employee training and development counters downturns and results in long-term growth and recovery success.

You don’t need “workforce optimization” software. You don’t need a Big 5 HR review. You don’t need predictive indices. You just need to focus on your people, make sure they have everything they need to succeed — which includes regular training and development, and stay out of their way when they’re getting the job done. That’s the key to a great company … and since great companies achieve long term growth … it’s also the key to success even in these troubled times.

The Value of AfterMarket Service in a Down Economy

MCA Solutions recently released a white-paper entitled “The Value of AfterMarket Service in a Down Economy” by Morris A. Cohen, the Panasonic Professor of Manufacturing and Logistics at The Wharton School of the University of Pennsylvania. In it, the author puts forward initiatives for your service business that he, and MCA, believes will generate revenue and profit for your business in 2009.

Aftermarket service presents some unique opportunities that make it a prime candidate for delivering value in the current financial climate. When you consider that many companies have slashed their budgets for new product and service acquisitions, it should be obvious that many companies will be looking to get more life out of their current products and services and looking to aftermarket service providers to help them.

According to the white-paper, increasing your market share of aftermarket parts and services will allow your company to generate a more predictable, high-margin revenue stream that will also increase customer satisfaction and retention. In addition, leading enterprises such as Cisco Systems, KLA-Tencor, Boeing and Tellabs have proactively undertaken strategic service management initiatives and have seen ROI benefits (in as little as two months) that include:

  • Cash flow improvements of 10%
  • Inventory reductions of 15% to 50%
  • Service level improvements of 5% to 20%
  • Customer retention through new and differentiated service offerings
  • Dramatically increased service revenues
  • Higher levels of global coordination

So what are some of the areas of opportunity?

  1. Reconfigure the Service Supply Chain to Respond to Changing Costs and Customer Requirements
    Best-in-class companies view inventory as a competitive weapon
    and typically employ multi-echelon inventory optimization and other resource deployment strategies to achieve superior product and service availability.     However, these days, service
    providers must also look to optimize the design and configuration of their service support network (locations, repair capacities, customer assignments, etc.) as a key strategy for achieving the lowest total cost and maximized customer service solution    .
  2. Reduce Overhead and Increase Time-to-Value Through Outsourcing and SaaS
    Service providers can expand their capability with a lower cost structure by outsourcing non-core capabilities to their suppliers. Logistics, warehousing, IT services, etc. can all be outsourced to low-cost, high-quality providers — freeing you up to focus on what you do best.
  3. Reduce Cost Through Optimization of Service Value Chain Resources
    Companies who use traditional planning tools developed for finished goods supply chains often hold far too much inventory with the wrong mix of parts. Getting the right mix of parts in the right places can lower overhead costs, improve service, and increase overall service profitability.
  4. Increase Revenue Generation with Customer-Focussed Service Offerings
    In a downturn, customers demand higher levels of performance from aftermarket service providers. This can be achieved through appropriately designed differentiated service offerings on a pay-per-performance model that will set you apart from the competition.

These are all great suggestions and each of them will help you save money while increasing the value you can bring to your customers. For more suggestions, as well as insight into how to approach each of these areas of opportunity, I recommend checking out the full white-paper that dives into these opportunities in detail. It’s worth a read.