Llamasoft Archives

SummerCon 2018: A Great Supply Chain Conference

Supply Chain Network Design | By Steve Banker • 06/27/2018

Supply Chain Design Software from LLamasoft

I went to my first SummerCon a few weeks ago (June 13 and 14^th). Summercon is the user conference put on by LLamasoft, a provider of supply chain design solutions. LLamasoft has 650 customers who cumulatively have over 7.5 trillion dollars in revenue. Here are my key takeaways from SummerCon 2018:

There is terrific payback from supply chain design solutions. Vijay Bharadwaj, the Manager Global Logistics Engineering & Strategic Solutions at General Motors, talked about their seven-year journey to optimize network design. At GM, the engineering team is an inhouse consulting group. Annually, the projects they take on save between 5 to 10 percent of the in scope spend. They have done many projects in the logistics area, some on an ongoing basis. Logistics costs as a percentage of revenue decreased every year from 2013 to 2018. That is a remarkable feat in today’s freight environment. Considering the size of GM’s transportation spend, $6.5 billion, and the length of time they have been at this, it would not surprise me at all if this small team has saved GM over a billion dollars.
Supply chain design can be used to attack a wide range of projects. Most commonly supply chain design is associated with where future warehouses and factories should be built. It is also commonly used to build an optimal transportation network, like at GM. But speakers from Dell talked about using the tools to enable fact-based decisions surrounding component and SKU rationalization. Other speakers addressed using these tools for product procurement optimization, optimizing order allocations, sustainability, and optimally supporting new product introductions.
Last year LLamasoft introduced Demand Guru. This is a demand modeling tool to help companies develop more customized demand planning solutions. This tool allows a company to more easily clean, blend and then ingest time series data and then test whether that data set improves forecasting over some forecast period or ship to location. Historical third-party data can be imported into the tool and then the company can examine whether their past forecasts could have been improved by using that data set. At this conference, it was announced that Cummins, Gerdau, and Interceramic are all using the tool to improve their strategic forecasting capabilities. This will enable these companies to make better budgeting and capital investment decisions. Most companies’ strategic forecasts use assumptions that are far too simplistic. Making better capital investment decisions can have a huge ROI! This solution is poised to grow very quickly.
Architecturally, their diverse products are being unified into one cloud-based platform. The platform includes a data management tool for pulling together all the data from diverse systems, validating the quality of that data, and blending the data together. Supply chain design projects require more data from more systems than any other type of supply chain solution. The data collection and validation process actually requires significantly more effort than the analysis does. This is a great tool for companies with a dedicated supply chain design team. The platform also includes a solution for building custom supply chain applications; Meijer used this solution to build their own Transportation Management System.
This was a fun conference. On a percentage basis, I saw more young people and women at this show than any other supply chain show I’ve attended. LLamasoft, headquartered in Ann Arbor, has a hip, funky culture ideal for smart young millennials.
This was a bit of a coming out party for the new CEO, Razat Guarav. I’ve known Razat for close to twenty years. He is one of the smartest and hardest working people in supply chain management. Congratulations to LLamasoft for landing him.

This was a great show! I hope to go back next year.

Donald Trump and the “Made in America” Supply Chain

Global Trade Management Solutions | By Steve Banker • 12/05/2016

Supply chain executives at companies with global supply chains are paying close attention to what happens surrounding import tariffs and trade rules now that Donald Trump is the President elect. On the campaign trail Trump promised to renegotiate the North American Free Trade Agreement, threatening to impose punitive tariffs on goods imported from Mexico. Similarly, Mr. Trump threatened to levy punitive duties on goods made in China. Carrier and Ford have already responded by promising to keep more production in the U.S. Mr. Trump wants to foster Made in America supply chains.

How should global manufacturers respond? Well one thing they are apt to do when the exact details become clearer is take a close look at their global supply chain network and how new tariffs will impact their total costs.

The Costs of Moving to a Made in America Supply Chain

I talked to Toby Brzoznowski, Executive VP at LLamasoft, on this topic. LLamasoft is a leading provider supply chain design software. This software allows companies to decide where they should locate their plants and warehouses in order to provide a desired service level at the lowest possible cost.

Mr. Brzoznowski mentioned that his colleagues in the UK are seeing record levels of interest in their solution following Brexit. He suspects that the Trump presidency may generate similar activity in the U.S. given similarities in the potential for introducing new trade policy.

“Companies for better or worse are forced to be global on both the supply and demand side of their businesses. Supply chains are extended globally as well. To compete, companies have to continuously trade off service and costs. The ones that do it best are walking the finest of lines. Anything that could disrupt that balance is a major risk.”

The LLamasoft Supply Chain Guru solution can integrate to Global Trade Management solutions that provide the details on tariffs and other trade rules like local content requirements. “We add in every unit cost – both fixed and variable -and the variable costs factor in taxes, based on volume, based on location.”

I mentioned to Mr. Brzoznowski that I thought if the new administration was trying to bring jobs back to America, local content requirements might be a better tool than straight out tariffs. I’ve talked to U.S. companies doing business in China that are required to source a certain percentage of components from Chinese firms in order to get a tax break. China and U.S. trade is regulated by the World Trade Organization treaty. China has said they will defend their rights vigorously based on this treaty; but they can’t complain too much about a practice they utilize.

“We’ve done a lot of analysis on local content,” Mr. Brzoznowski stated. “Manufacturers often look to find a supplier within a country that has high demand for their products. They may still do final manufacturing in another company. But then they seek return the products with local content back to the origin nation to incorporate the tax break. There can be a fine line between adding transport legs and leveraging tax breaks.”

Doing supply chain design well, requires continuous contingency planning. “It is good to know what is optimal,” Mr. Brzoznowski explained, “but the companies that are best at this pay just as much to when it is no longer optimal.”

Tariff Scenario Analysis in the LLamasoft Supply Chain Guru Solution

Design Centers of Excellence for Network Design

The scenario planning process is often done in design centers of excellence. For a supply chain design to be robust, contingency plans have to be developed. Supply chain engineers must ask themselves, “what is my tolerance around these variables I can’t control?” Mr. Brzoznowski stated that these engineers “need to do a sensitivity analysis.” If a particular cost driver goes up or down by plus or minus 50% in increments of 5, when does a design flip and become uneconomic? The network team monitors this.” They need to understand which metrics they need to monitor based on which metrics will have the most impact on making a network design infeasible.

From a supply chain perspective, the election of Donald Trump is a disruptive event. “Any new administration creates uncertainty,” Mr. Brzoznowski said. “The most recent campaign promises on tariffs – and on providing incentives to get companies back to U.S. – have already put global companies into overdrive, examining their options and determining how best to redesign their supply chains.”

Guest Commentary: Finally, A New Way to Look at Inventory Optimization

Guest Commentary | By Toby Brzoznowski • 10/08/2013

Finding the balance between overstocks and lost sales is necessary for operational growth and health. With so many flavors of inventory optimization applications available, why do so many companies still struggle with inventory inefficiencies? It’s because traditional inventory applications fall short in three key areas:

They assume that all demand is smooth and normally distributed
They only consider safety stock for the existing supply chain structure
They do not simulate real-world behavior or enable what-if analysis

There is a new way to approach inventory modeling and policy design that enables companies to analyze and properly categorize demand, factor all aspects of inventory for both existing and new supply chain structures and simulate real-world behavior to enable true “what-if” capabilities. Together, these capabilities provide a prescription for the right levels of working capital across a continuously-changing business. So let’s look at the three advantages of looking at inventory optimization in this new, holistic manner.

Advantage 1: Understanding Demand
Simply stated, safety stock is your insurance against variability in the supply chain. One of the biggest sources of variability in the supply chain is demand, and demand can be highly unpredictable, occurring in patterns from fast to slow, smooth to erratic, intermittent to consistent (Image 1). Despite this fact, most inventory optimization tools assume that all demand is “normal,” leading to either too much inventory or stock-outs and lost sales.

Intelligently adapting to widely-varying demand behaviors is the key to better safety stock results. Comprehensive multi-echelon inventory optimization technology can actually act as a guard against inventory variability. This is achieved by analyzing and classifying the underlying demand patterns into categories (Image 2), then applying the appropriate inventory optimization algorithm to set the proper reorder points and quantities required to meet the user-defined service targets. Of course, this is all done automatically using advanced algorithms.

Image 2: Image 2: Example of classification of varying demand patterns — Image 2: Example of classification of varying demand patterns

Advantage 2: Covering all Aspects of Inventory for Both Existing and New Supply Chain Structures
There are multiple types of inventory held throughout the supply chain, including cycle stock, pre-build stock and work-in-progress (WIP), so why do most inventory applications only focus on safety stock? And why can’t most applications consider alternative supply chain structures? The answer is that most inventory applications do not include network optimization capabilities.

Network optimization is the technology required to consider the optimal flow of products throughout the supply chain and inherent cycle stock given the trade-offs between a host of variables including transportation modes and facility locations. Multi time-period network optimization is the technology required to determine when products need to be pre-positioned to accommodate seasonality or capacity constraints. Working with a combined network and inventory optimization solution, planners can evaluate all aspects of inventory including safety stock, cycle stock, pre-build stock and WIP. This integration also enables analysts to consider completely new supply chain structures such as the opening/closing of distribution centers or manufacturing locations, then immediately evaluate the optimal inventory requirements for these new potential networks.

Advantage 3: The Power of Adding Simulation to Inventory Optimization
Although companies can identify millions of dollars in annual cost savings through right-sizing inventory levels, optimization technologies have limitations to how well they can predict operational performance under the stress of real-world day-to-day variability such as transportation delays, production lead times and demand. The only way to truly test the effects of these multiple levels of variability is to use discrete event simulation. Simulation can digitally “run the clock” to fill each order and schedule each shipment to provide detailed performance metrics such as on-time deliveries, stock-outs or capacity bottlenecks. Once an inventory strategy has been chosen using optimization, simulation is an excellent method to test it further, providing validation that the new inventory policies work as intended.

A New Weapon for Supply Chain Excellence
Finding the balance between overstocks and lost sales isn’t easy. Fortunately, new tools are available to allow companies to analyze and properly categorize demand, consider all aspects of inventory for both existing and new supply chain structures and simulate real-world behavior. These capabilities give companies the resources they need to finally conquer the inventory challenge and achieve a healthier overall business.

Toby Brzoznowski is the Executive Vice President of LLamasoft, Inc. Toby has over 20 years of experience in building and growing businesses, focused on process improvement and analysis technologies. His expertise has been applied to bringing new and advanced technologies into mainstream use at global Fortune 500 businesses. In the last decade, Toby has been involved in the start-up of three technology companies. He is a graduate of the University of Michigan and a frequent presenter at supply chain and strategic sourcing events.

This Week in Logistics News (September 9-13, 2013)

Supply Chain Risk Management | By Adrian Gonzalez • 09/13/2013

Document less, experience more. That was the key takeaway from a great HBR article by Daniel Gulati published in April 2012. I was reminded of that article when I came across the video below this week, which saddened me and made me realize that I need to work harder on keeping my phone in my pocket.

Moving on, here’s the news from the past two weeks that caught my attention:

Descartes reported Q2FY14 revenues of $38.2 million, a 25 percent year-over-year increase. Revenues for 1HFY14 are up 20 percent compared to the same period a year ago. Over the past eight years, the company’s quarterly adjusted EBITDA has experienced a CAGR of 36 percent.

While Descartes’ financial results (driven both organically and via acquisitions) are impressive, the metric that most interests me, as an advocate of Supply Chain Operating Networks, is that more than 147,000 parties are connected to its Logistics Technology Platform exchanging more than 4.5 billion messages each year. To paraphrase the old Verizon Wireless ad campaign, I believe “It’s the network” that will increasingly differentiate supply chain and logistics solution providers moving forward.

In other technology news, LLamasoft introduced “multi-objective optimization technology that enables businesses to analyze the trade-offs between multiple supply chain objectives for faster, more informed decision making.” Here are some more details from the press release:

Multi-objective optimization is an integrated tool within LLamasoft Supply Chain Guru supply chain modeling software that allows users to quickly view the trade-offs between [supply chain design] objectives in order to select the best solution.

Using a simple user interface [emphasis mine], the tool automates the analysis of trade-offs across 19 available objectives. Multi-objective optimization automatically optimizes to and provides insight into any two best solutions, such as lowest cost and best service, then quickly presents the trade-off analysis between the two.

Historically, these types of optimization tools were limited strictly to power users because of the specialized knowledge required to use them effectively. However, LLamasoft and others are now focusing to make these solutions more accessible to a broader range of business users, and they are starting by innovating the user interface (see “Will Supply Chain Software Vendors Start Competing on Design?”).

I keep making the case that companies need to rethink supply chain risk management — i.e., embed risk within their corporate DNA, and make conversations about risk as common as conversations about cost and service. The good news is that new solutions and services continue to emerge in this area. This week, for example, Resilinc introduced EventWatch™ Professional, “a new supply chain risk management service providing 24×7 monitoring and detection of global events that threaten to disrupt supply chains worldwide.” According to the press release:

Resilinc monitors thousands of global news sources, identifies critical supply chain developments, and then filters, researches and notifies clients regarding potential supply chain threats. Intelligent filtering capabilities eliminate redundant notifications and reduce time spent on non-supply chain impactful events.

Resilinc EventWatch monitors more than 25 different types of disruption events ranging from catastrophic global crises, such as earthquakes, hurricanes and floods, to isolated incidents such as factory fires and port and labor strikes, as well as government regulatory actions.

Speaking of supply chain risk management, one of the greatest risks companies face is not having a detailed understanding of their end-to-end supply chain. In other words, companies are often blindsided by “I didn’t know that” situations, such as unauthorized factories making products for them (see WSJ article, “Why Retailers Don’t Know Who Sews Their Clothing”). That was one of the topics I discussed yesterday in my Talking Logistics episode, “Why Supply Chain Visibility Remains an Elusive Goal.” Shortly after the episode ended, I came across a Reuters article about Land’s End investigating a report that some of its clothing is being manufactured in North Korea, which is against U.S. law. According to the article:

NK News reported on Thursday that at least five dress shirts branded with Lands’ End labels — but displaying “Made in China” tags — were seen on a rack at North Korea’s Sonbong Textile Factory in June.

Lands’ End said “it is too early to say” whether it is a case of counterfeiting or a supplier outsourcing manufacturing into another country, spokeswoman Michele Casper said.

Like I said yesterday, unless you invest the time, money, and resources to fully map your end-to-end supply chain, you will always have blind spots in your supply chain, no matter how fancy a supply chain visibility tool you implement.

And with that, have a happy weekend!

Song of the Week: “Counting Stars” by OneRepublic

Note: Descartes and LLamasoft are Logistics Viewpoints sponsor.

This Week in Logistics News (August 26-30, 2013)

Mergers-Acquistions | By Adrian Gonzalez • 08/30/2013

This was a relatively quiet week for news, and I suspect many of you are taking off early today to enjoy the long holiday weekend, which unofficially marks the end of summer. So, without delay, here is the news that caught my attention this week:

Qualcomm is selling its Omnitracs subsidiary to Vista Equity Partners for $800 million in cash. Here is a quote by Derek Aberle, executive vice president and group president at Qualcomm:

“In the late 1980’s, Qualcomm pioneered the use of commercial vehicle telematics with the introduction of the first mobile information system for transportation and logistics. As one of Qualcomm’s earliest businesses, Omintracs has maintained a leadership position within the industry for 25 years. Today, the opportunity for fleet management and telematics is evolving rapidly, and we believe Omnitracs is well positioned to continue its leadership position as a stand-alone entity.”

The opportunity for fleet management and telematics is certainly evolving rapidly, but the competitive landscape and scope of solutions are very different today than in the late 80s, especially as GPS-enabled smartphones and other devices have become nearly ubiquitous. In the early days, Omnitracs owned the top end of the market, but everybody else was left on the sidelines because the technology was simply too expensive to deploy. Today, there is a much broader spectrum of solutions available in the market, from the simple and affordable to the most sophisticated and costly.

In other technology news, Kewill announced the release of mobile applications for its Kewill Logistics software. According to the press release:

The iOS and Android applications allow drivers to instantly log in to their company’s Kewill Logistics operating system, retrieve a list of trips to be made, and send back the status of each stage of the trip directly from standard touch-screen smartphones or tablets. This helps logistics organizations easily communicate with drivers, provide instructions in real-time and keep customers informed on shipment progress, without investing in separate software or hardware. Furthermore, it extends the reach of the Logistics operation to 3rd party transport providers by allowing them to connect without having to be on the LSP’s networks, systems or investing in additional hardware.

Meanwhile, LLamasoft announced a partnership to offer ALK’s PC*MILER routing, mileage and mapping software solution to its customers. According to the press release, “The partnership with ALK provides LLamasoft Supply Chain Guru and LLamasoft Transportation Guru customers an industry-recognized means to accurately calculate distance and transit times for all global regions, as well as determine geocoding and detailed road routes.”

Finally, according to the the Bureau of Transportation Statistics, $93.5 billion of freight moved in June 2013 between the United States and its NAFTA partners, Canada and Mexico. This is a 0.8 percent decline from June 2012. The value of freight moved by all modes decreased in June 2013 compared to the previous year, except for rail, which increased 0.7 percent. Overall for the year, the value of freight moved between the U.S. and its NAFTA partners is up 1.1 percent — much lower than the 2011-2012 year-to-date increase of 7.7 percent.

In short, trade between the U.S. and its NAFTA partners has flatlined over the past 12 months. Cause for concern?

And with that, have a safe and happy weekend!

Song of the Week: “A Question of Time” by Depeche Mode

Note: LLamasoft is a Logistics Viewpoints sponsor.

This Week in Logistics News (July 15-19, 2013)

Mergers-Acquistions | By Adrian Gonzalez • 07/19/2013

I passed on spending $1100 to fix my car A/C, so I’ve been driving around with the windows down this summer. When you have Cuban blood, 99 degrees is nothing to complain about (although I reserve the right to change my mind).

In this week’s news, new products and services and a couple of acquisitions top the list.

Con-way Freight announced this week that it has enhanced its Mexico service offering with the introduction of real-time, door-to-door online tracking, a 24-hour Customer Resource Center and new web tools for tendering and managing shipments moving to and from Mexico. As I’ve commented in previous postings, if you are a 3PL or transportation company and you’re not involved in cross-border shipping with Mexico, then you are missing out on a growing business opportunity (see Reuters article from December 2012). Based on the comment below from the press release, Con-way is making these enhancements in response to increased customer demand for Mexico services:

A recent survey of Con-way’s customers showed that with increased NAFTA traffic, and more manufacturing being shifted from Asia to Mexico, the provision of fast, efficient and simplified services, coupled with enhanced door-to-door visibility to shipments, is increasingly a requirement for today’s fast-response demand cycles.

On the technology front, LLamasoft announced the release of Data Services, “a new offering that provides reference and benchmark data to LLamasoft customers and others in the supply chain design community…[this data] enables significant reduction in model building time and validates model outputs against realistic standards.” Here are some additional details from the press release:

Data Services data sets will include mode-specific transportation costs and transit times, facilities cost estimates, demographics, risk metrics, duties and taxes, sustainability metrics and others. Users can access Data Services initially through an Excel macro interface with future direct connections planned to LLamasoft supply chain modeling software such as Supply Chain Guru and Transportation Guru, or through a Web-based interface. Source data is a combination of reference and benchmark data from third parties as well as econometric models and formulas.

Meanwhile, Oracle announced the general availability of two new Oracle In-Memory Applications for Oracle Value Chain Planning: Oracle In-Memory Consumption-Driven Planning and Oracle In-Memory Performance-Driven Planning. According to the press release:

Oracle In-Memory Consumption-Driven Planning helps organizations understand and respond on a daily basis to true end-customer demand thus helping to reduce bullwhip effect and to improve on-shelf availability and inventory turns.

Oracle In-Memory Performance-Driven Planning helps organizations analyze and plan massive amounts of supply chain data and get better, more timely business insights to simulate multiple real-time scenarios in order to improve decision making and reduce risk.

The merging of supply chain software and trading partner connectivity continues, with HighJump Software announcing this week that it has acquired Evenex, a provider of business-to-business integration solutions. Evenex has “over 3,000 customers exchanging more than 375,000,000 documents every year and is the leading and preferred business-to-business integration provider in Denmark.”

Last-mile logistics is a niche segment of the 3PL market that is starting to heat up, as evidenced by XPO Logistics’ announced acquisition of Atlanta-based 3PD — “the largest non-asset, third party provider of heavy goods, last-mile logistics in North America” — for about $365 million. Here are some additional details from the press release:

3PD reported year-over-year growth in adjusted EBITDA1 of 20 percent and 36 percent for the full year 2012 and the first five months of 2013, respectively; and trailing 12 months revenue of $319 million through May 31, 2013.

3PD provides blue chip retailers with customized solutions tailored to their supply chain needs, and serves small and mid-sized shippers by matching them to carriers on a transactional basis. The business has differentiated itself through its ability to assure a superb customer experience using proprietary technology and industry-leading process management.

And finally, UPS raised a red flag by lowering its full-year EPS expectations. “Overcapacity in the global air freight market, increasing customer preference for lower-yielding shipping solutions, and a slowing U.S. industrial economy drove revenue and operating profit below expectations [in Q2 2013],” said the company in the press release. “In addition, UPS experienced some slowing in package volume growth as a result of labor negotiations.”

Will the growing trend of retailers fulfilling online orders from stores negatively impact UPS and FedEx in the future? A Reuters article published this week raises this question, and it includes the following quote from Joel Anderson, president of walmart.com:

“We are at least two zones closer [to the customer] by utilizing the stores,” Anderson said. “The closer we can inject the order into our network, the more this saves the customer time and reduces what it will cost us to get it to the customer.”

I wonder if Mr. Anderson is factoring in the difference in labor costs between stores and distribution centers in his calculation, as well as the cost of transporting the goods to the stores in the first place.

And with that, have a happy weekend!

Song of the Week: “Safe and Sound” by Capital Cities.

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The Costs of Moving to a Made in America Supply Chain

Design Centers of Excellence for Network Design

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