Category Archives: Decision Optimization

Simulation and Modeling Can Help You Go Lean AND Save

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As regular readers know, I’m a strong proponent of analysis, modeling, and optimization because I know from experience the significant cost reductions these technologies can bring to any procurement department when properly applied. That’s why I was delighted to see this recent article in Industry Week on “leveraging lean designs” that illustrated the effectiveness of 3-D models.

The article noted how Chrysler Group LLC used 3-D simulation software to model it’s Toledo North Assembly plant during the design phase and came up with a model that cost only $54 per square foot, about 30% less than the industry average (at the time) of $75 per square foot. Not only can modeling software help you find plant designs that are more efficient and that allow your workers to be more productive, but it can help you save considerable dollars in their construction.

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.