@ Supply Chain Management


Supply Chain Software providers report their successes!

The latest edition of GLCS magazine is out at the site. I scanned the magazine for reports of successes claimed by Supply Chain Software providers in various industries. Some of the successes reported were:

1. IBM reports that its new Dynamic Inventory Optimization Solution (DIOS) helped reduce inventory for a German Retailer – Max Bahr by upto 40%. This they did integrating Point of Sale (POS) transactions from Max Bahr’s 90 stores, analyzing them against a two year history of each product and calculate replenishment targets automatically and even turn 90% of them into orders.

Having attended the DIOS webinar, I must say that what I saw demonstrated seems to accomplish what has been described above. However, I am wary of producing/stocking to forecasts (even if they’re based on factual historical data) but that is probably better than not having an integrated system that actually does some data crunching which seems to have been the case at Max Bahr prior to DIOS introduction. In that case, what is the precise value and more importantly source of the value that introducing DIOS has created at Max Bahr?

2. Oracle integrates Demantra into its enterprise solutions offering. Demantra is focused on promotion forecasting and event planning and its integration into Oracle is claimed as a complementary move.
3. Kinaxis helps Varian Semiconductor respond rapidly to customer needs. Varian Semiconductor operates in a highly cyclical market that involves complex products that require significant customization and ongoing engineering updates. Varian also experiences long lead times from parts suppliers as well as short order lead times from customers. Kinaxis’s response management tool – RapidResponse allows Varian to perform what-if analyses in minutes versus hours with its ERP system.

Very interesting! After coming across RapidResponse and Response Management and quickly diving into the underlying Theory of Constraints, I think that this is very important on two levels. Firstly, that ERP while providing data exchange and visibility across the organization fails to help managers manage their business – meaning that ERP is not really serving the customers needs. Secondly, that RapidResponse works not only at the conceptual level but also from the point of view of ease of implementation and integration – that means that you’re using the ERP data backbone quite effectively.

4. SmartOps creates a model inventory plan for Caterpillar. Caterpillar aims to create competitive advantage by focusing on faster and more predictable product availability. SmartOps solution Multistage Inventory Planning and Optimization (MIPO) helped Caterpillar reduce total chain inventory, improve dealer and end customer satisfaction through improved product availability.

Only one comment to make – Is it so bad in the earth moving/agri-business industry that making one’s product available to its customers faster and more predictably (wonder what that means) is considered a competitive advantage? Is Komatsu listening?

5. Terra Technology provides Campbell Soup with a recipe for supply chain success. Campbell implemented a “Class A” sales and operations planning process (S&OP) by installing Terra Technology’s Real-Time Forecasting (RTF) and Real-Time Inventory (RTI). RTF’s approach to forecasting includes analyzing the most recent demand signals nightly and adjusting forecasts to better predict demand. Because RTF detects unexpected shifts in demand when they occur, Campbell is aware of them immediately instead of weeks later.

Can IBM’s DIOS and Terra Tech’s RTF be more alike? They’re probably not that similar but it does look like they’re competing in the same space. What really underlies this technological space is integrating POS data near real-time into a predictive engine and come up with new targets. Here is a comment from Steve Cortese, Campbell’s director of Supply Chain Infrastructure:

“We carry 20 percent less safety stock using RTI. At the same time we have become more responsive to our customers.”

There are two polar opposite ways of dealing with the uncertainty in demand that a firm might experience at the customer end. One way is to produce to a forecast of the demand and the other is to produce to the demand, the former is a version of reality created by sophisticated/unsophisticated algorithms while the latter is reality. The competition that these two possible ways of competing is really between the realized magnitude of error in the forecast and the ability of an organization to compress its actual lead times in fulfilling the demand. In the former case, while predictive forecasting is better than some forecasting is better than no forecasting, the competency that is being created/honed is How do I create a better idea of what the real demand is going to be?. In the latter case, the competency that is being created/honed is the ability of a firm to relentlessly execute its manufacturing/procurement plan in order to fulfil the demand, satisfy the customer etc. Which way do you think a firm should be headed?

Categorized as: Lean_, Supply Chain Management_, Review_, News_
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Logistics costs under pressure

Logistics Management highlights from their 17th Annual State of Logistics report a finding that rising prices and interest rates will soon push logistics costs above 10% of GDP. They refer to a report written by economist Rosalyn A. Wilson for the Council of Supply Chain Management Professionals (CSCMP) that places logistics expenditures at 9.5% of GDP.

That’s a sharp departure from the three previous years, when those costs ranged between 8.6 and 8.8 percent of GDP (see Figure 1). And it’s perilously close to the 10 percent mark, a long-accepted demarcation separating reasonable and exorbitant cost levels.

Among the factors contributing to this precarious situation are:

One factor is the steady climb in interest rates, which has pushed up inventory-carrying costs. But the biggest cost driver has been rising transportation expenses, which reached $744 billion in 2005, up from $636 billion in 2004. Soaring fuel prices, a driver shortage, and diminished competition have all come together to raise rates across all modes, and for trucking in particular.

The article explains briefly how the value of logistics relative to overall economic activity is calculated:

That formula adds together three components: inventory-carrying costs, transportation costs, and administrative costs. This year Wilson calculated total logistics costs for 2005 at $1.183 trillion, a 15.2 percent hike over the previous year’s total.

The article also offers a snapshot of the US Logistics Market in 2005. That snapshot shows that Transportation costs have the lion share of Total Logistics costs in the US and the major issues there are driver shortages, tight trucking capacity and higher diesel cost.
Longer term, the report outlines aging and inadequate transportation infrastructure and supply chain security as the two long-term challenges for logisticians. Wilson writes that the transportation infrastructure is severely strained in some locations because of the dramatic growth in volume of freight. As for supply chain security, Wilson notes:

Like many other industry observers, Wilson argues for a holistic approach to security. She advocates end-to-end monitoring of cargo and at the same time establishing and preserving a proven chain of custody. Although companies would have to bear the costs associated with those practices, she believes that improved security would justify the expense. “Investment in state-of-the-art cargo- security technology and monitoring solutions can provide a significant return on investment, often at bargain prices considering the value of the capital that could be lost by a disruption in global container shipping,” she writes. Embracing security as a core business function will mitigate the need for invasive government practices, she adds.

Categorized as: News_, Supply Chain Management_
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About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

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July 2006