Category Archives: Decision Optimization

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.

Crossing the “Valleys of Despair” in Advanced Planning and Scheduling

Last summer, the Supply Chain Management Review ran a good article on “How to Succeed with Supply Chain Planning” that is very timely now as smart companies acquire advanced software systems to help them save money in this downturn while their dumb counterparts cut the budget and stick their heads in the ground like ostriches waiting for this golden opportunity to just pass them by.

APS tools are not a new invention, having been around in one form or another for at least ten years. The difference is that today, you have on-demand best-of-breed options from companies like Kinaxis, MCA Solutions, and Servigistics in addition to the old standby solutions from the big ERP players like Oracle, SAP, and SSA Global. However, enterprise deployments are still time consuming, typically requiring three to six months for the on-demand options for mid-size manufacturers and nine to eighteen months for the on-premise options for large manufacturers. However, many implementations, especially on-premise installations on top of on-site ERP installations, still follow a well-defined pattern with periods of difficulty that the authors identify as “valleys of despair”.

APS tools are important, especially for organizations that manufacture or supply products to end-customers, because, as the article points out, they can significantly decrease operational costs and noticeably increase on-time delivery and customer responsiveness. For example, after implementing APS, one electronics company found that it could respond to demand changes in minutes, as opposed to weeks, and increase on-time delivery by 15%. However, the improvements are only realized if the tools are properly implemented. While proper implementations can save millions, improper implementations can cost millions and, if you’re really unlucky, cause bankruptcies. (Remember the Nike fiasco? Or the Aris Isotoner kerfuffle? Or the Foxmeyer implosion?)

So what are the valleys of despair and how do you react to them?

  1. The Solution Doesn’t Work
    The first crisis occurs right after the design phase when expectations collide with reality. When the solution is run for the first time with a production data set, the project team is likely to get an unwelcome surprise: seemingly unintelligible output, often accompanied by system performance problems. APS systems are complex pieces of software and it takes time to properly configure the solutions, to load all of the data, to tweak performance so that run times aren’t excessively long, and to work out the kinks. Even with the best efforts, it will take a few iterations before performance enters the expected range. The key is to remember the great advice given to us by The Hitchhiker’s Guide to the Galaxy and Don’t Panic.
  2. No One is Using the Solution
    The second crisis occurs right after the solution moves into production. The business users — the supply planners in the supply chain organization — find it difficult to interpret the output and are confused by the planning model and solution behavior. After a brief struggle, many users revert to the comfort of familiar spreadsheets and abandon the solution altogether. The key to success is to establish a comprehensive training program that starts before the design phase (allowing the supply planners to provide input into model formulation), continues through development (allowing the power users to perform user testing), and goes right up to deployment (ensuring that the planners will be able to fully, and properly, use the system).
  3. The Business Has Changed
    The final crisis occurs after one or more business conditions change and the models in the APS no longer reflect operational reality. If the planners don’t understand how the changes affect the APS model and outputs, they will “drift” away from the solution. The key to crossing this valley is to form a permanent support team and insure that they work with planning regularly to update and adjust the model as needed.

It’s a great article and I highly recommend you read it in its entirety.