Monthly Archives: January 2016

RiverLogic: Bringing Optimization to the Enterprise

In our last two posts on Beyond Sourcing Optimization we noted that Strategic Sourcing Decision Optimization (SSDO) is just one area where optimization can be successfully applied in a progressive organization that is a leader in its industry. An average enterprise organization is ripe with opportunities for the application of optimization technology — optimization technology which can easily add up to 5% to the bottom line if properly applied.

RiverLogic, which is advertising prescriptive analytics technology and enterprise optimization, is one such company that is tackling enterprise optimization. Advertising holistic decision support that performs simultaneous optimization of the entire business model, the optimizer is capable of integrating demand, production, and inventory optimization into a single holistic optimization model that, when run, optimizes production and inventory against demand to maximize profit by optimizing revenue against production and inventory (carrying) costs.

As one may have gathered by our previous post, this is no easy feat. Production optimization requires one type of model that understands production line throughput, machine utilization overhead costs per hour or unit, associated workforce requirements, associated costs during regular and over time, raw material inventory costs, and logistics costs at different production levels. Inventory optimization is a different type of model that must take into account the myriad of costs that contribute to the amortized inventory carrying cost and that include, but are not limited to, warehouse overhead costs, labour costs, and depreciation costs and balance these against logistics costs from more or less frequent orders. Finally, demand optimization is its own beast as one has to have a relatively good understanding of the different types of marketing spend and how each will influence market demand, the costs of production at various volume levels and delivery commitments, the associated lifecycle costs including outbound distribution costs, warranty and service costs, and any end-of-life reclamation costs (if one or more locales in which the product is being sold have mandatory reclamation or recycle laws for the product or one or more of its components). Now, one can create a mega-model that encapsulates inventory and production costs into the demand optimization, but it’s not easy, and that’s why few companies have tackled this problem (just like few companies have tackled true SSDO). And most that have tackled this problem do so by building custom models for their clients that require individuals with advanced degrees in Mathematics or Operation Research to run.

However, the RiverLogic platform, like leading SSDO platforms, comes with this model “out-of-the-box” and all a user has to do to build a basic model is get the data. At this point you’re probably thinking this is a show-stopper as

  • the amount of data required to populate such a model is extremely extensive and
  • outside of the ERP, no one system has even a fraction of the data required.

RiverLogic understands this perceived dilemma as well and that’s why their platform integrates with over a dozen major ERP and Accounts Payable systems because when you get down to it, that’s where the majority of the cost data required for a holistic demand optimization model, that simultaneously balances inventory and production, resides. Once the proper integrations are done, the model can be run out of the box and the organization can instantly see relative to its demand forecast the optimal production and inventory levels (and, as a bonus, the optimal distribution plan and cost model as logistics are also accounted for in this holistic model). This will allow an average organization that has not simultaneously balanced these models before to shave at least an extra 5% to 15% off of overhead costs and, if one or more of these models haven’t been run before, even more. And these savings will trickle down straight to the bottom line the instant the plans are updated.

But the power of the platform doesn’t stop there, like the best SSDO solutions, it also supports powerful what-if optimization that allows the organization to see how production and inventory plans change if the demand projections were to change, if more money was allocated to marketing, or if the estimated impact of marketing campaigns were more or less successful than initial predictions. This model can be run any time and plans updated dynamically, taking effect with the next (automated) order upon publication to the demand / inventory / order management module of the ERP(s) that the platform integrates with.

Now that leaders like you are using decision optimization in your Sourcing and advanced spend analysis in your planning, you’re ready to apply that knowledge and capability across enterprise operations and, as such, are ready for the enterprise optimization (and prescriptive analytics) that innovators like RiverLogic are offering. RiverLogic is one of the handful of companies you’re going to be hearing a lot more about in the coming year
and one that should definitely be on your radar as you look to take cost control across the enterprise (because what good is saving 10% on a category if poor operations just eliminate that savings after the deal is signed?).

Do You Have Your 2016 Supply Risk Management Game Plan?

Here at SI, the doctor certainly hopes so because you are going to get hit with at least one disruption this year, and chances are it is going to be fairly significant. (I.E. one that will result in, at least, a 3-month stock-out if not promptly mitigated, and not a 3-day stock out that, unless you are Apple launching an iPhone, won’t affect sales noticeably.)

As regular readers know, risk is still increasing, and the odds of your organization not getting hit with at least one significant disruption over the next 12 months is, at best, 1 in 10. You have better odds of winning a prize in a Lotto 6/49 draw (in Ontario, Canada where you win a Free Ticket and effectively get your investment matched on the next draw when your ticket matches 2 of 6 numbers) than of not experiencing a significant supply chain disruption over the next twelve months. Ouch!

But you’re overworked, underpaid, and not trained in risk management and probably don’t have a game plan yet. So what can you do?

Well, you can start by checking out the doctor‘s and the maverick‘s recent four part series on “Your Supply Risk Management 2016 Game Plan” over on Spend Matters Plus (membership required) which dives deep into how you can best define manage your supply risk programs. This series:

  • defines the types of supply disruption, product cost volatility, regulatory compliance, and reputation risk you need to plan for
  • explains why you have to think global and implement local to develop an effective strategy
  • gives you strategies to identify primary risks, mitigations, indicators, and monitors
  • helps you understand how you can align risk and reward to get support
  • helps you understand how to get more C-level visibility
  • and presents a scoring methodology that demonstrates business impact, which is critical to getting C-Level support

All four parts were up as of last month, and all four are a must read for anyone who needs to get a grip on supply risk and how to handle it. Don’t wait until it bites you in your backside three days after a critical order was supposed to arrive (but didn’t because the tier 1 supplier decided not to tell you when the tier 2 supplier didn’t supply the raw material needed for production, which is no longer available because a mine collapse reduced the available, limited, global supply by 10%). The bite a supply disruption can take out of your business is much worse than a boghog will take out of your backside. So SI strongly recommends you check out the following now:

  • Part   I: Supply Risk Definitions
  • Part  II: Developing Strategy
  • Part III: Risk and Reward
  • Part  IV: Measurement and Management

Seventy Years Ago Today …

… we entered the communication space age with the successful completion of Project Diana, an experimental project of the US Army Signal Corps in 1946 to bounce radar signals off of the Moon and receive the reflected signals. The first experiment in radar astronomy, it used a large transmitter, receiver, and antenna array constructed for the purpose in a laboratory at Camp Evans. The transmitter, provided 3 kw at 111.5 MHz in 1/4 second pulses applied to the antenna, a reflective array attend composed of an 8×8 array of half wave dipoles in front of a reflector that provided 24 dB of gain. Reflected signals were received about 2.5 seconds later (which is the time required for the radio waves to make the 768K km / 477 mi journey), proving the technique and successfully completing the experiment.

While moonbounce communication was not that practical (outside of its use in radar astronomy to map Venus and other nearby planets), as it was abandoned by the military with the advent of communications satellites a mere two decades later, and is now only used by amateur radio operators, it did usher in the communication space age and should not be forgotten.

Two Hundred Years Ago Today …

… saw the first successful test of a Davy Lamp, a safety lamp for use in flammable atmospheres that consists of a wick lamp with the flame enclosed inside a mesh screen that acts as a flame arrestor. The idea is that air (and firedamp) can pass through the mesh freely enough to support combustion, but the holes are too fine to allow a flame to propagate through them and ignite any firedamp (like methane) outside of the lamp.

While this lamp, designed to decrease accidents by preventing explosions that would maim or kill miners when there was an abundance of methane or other combustible gasses, actually increased mine accidents (as miners believed it was now safe to work in parts of the mine that had previously been closed for safety reasons), successors did eventually increase mine safety and allow mines to be worked more safely (when the lamps, such as the Protector Garforth GR6S flame safety lamp, are properly used).

When the lamp was first released, miners believed they could work in sections of the mine that had unsafe levels of methane because the lamp would not ignite the methane. This was true only insofar as the lamp was not damaged, but, in the original design, the bare gauze was easily damaged and the lamp became unsafe as soon as a single wire broke or rusted. Plus, because the mine owners thought the safety lamps were enough, they did not install proper ventilation to keep methane levels down (which would have prevented methane explosions from slightly damaged lamps).

But, eventually, legal requirements for legal air quality and safety lamp improvements made mining safe, and the raw materials we all depend upon to create our products became easier to mine and supply became more predictable. While the Davy Lamp may have been a bump in the road, it was an important invention on the road to modern mining.

The 101st Damnation!

And now, the damnation you’ve all been waiting for. The one that even tops damnation 100, bloggers, like the doctor.

Have you figured it out yet?

It’s obvious, isn’t it?

The last damnation is … is …

YOU!
 

You chose a career in Procurement (or at least accepted it when you were forced into it).

You stuck with it.

You believe you can make a difference.

You continue to stick with it, day in and day out, while everyone else tries their best to discourage you, circumvent you, and utterly make your life more of a living hell than it already is.

You continue to fight the underdog fight when the entire C-Suite is in the other corner.

In other words, while we didn’t start the fire, as it was always burning since the world’s been turning (as the world’s second, or is it third, oldest profession), our continued effort to fight the fire feeds the flame of damnation.

In our continued attempt to make the business world a better place, we clash with all of the departments, feel pressure from all of the authorities and influencers, and feel the constant consumer wrath as we struggle with infrastructure, regulations, and society as a whole. We get caught up in the geopolitical environment, get crushed under the weight of the economy, get reigned in by the environment, get boxed in by our providers, and, finally are constantly hindered by the technological limitations we are forced to live with.

Damnation is not self-perpetuating, but it gets reinforced every time we acknowledge it and fight against it.

But all is not lost. We might still be losing the battle, but if we are strategic in all of our actions, someday, we might just win the war.