Llamasoft Archives

Guest Commentary: Like Money in a Coat Pocket: Uncover Hidden Cost Savings in Your Supply Chain

Guest Commentary | By Toby Brzoznowski • 07/16/2013

Is there anything better than putting on last year’s jacket and finding money in the pocket? The money was right there, but hidden just below the surface of that coat pocket. There are a few things that make this “found money” so great: it’s fast – you just reached into your pocket and there it was in your hand. It’s easy—you didn’t have to toil away for long hours to earn it. Finally, it’s unexpected—you hadn’t planned on having that extra cash when you started the day.

Much like that money in your coat, there are numerous supply chain cost saving opportunities that are hidden just below the surface at most companies, and you can utilize supply chain modeling technology to uncover that money. There are four key modeling techniques used by many leading companies to “find” money in the supply chain:

Product flow-path optimization
Demand segmentation and inventory right-sizing
Production footprint analysis
Transportation route optimization

Each of these techniques can deliver the same fast, easy and unexpected benefits. They are fast in that they do not require years to implement. They are easy because they do not require major structural changes to the supply chain. Finally, they are unexpected because modeling technology often uncovers solutions that contradict intuition or legacy business practice.

Product Flow-Path Optimization
The process of moving your products from supply through production and eventually distributing them out to customers or stores presents a myriad of choices. The collective set of these choices make up a product’s flow-path through the supply chain. Modeling these flows can provide you with a total landed cost or total cost-to-serve for each product. Modeling all the alternative flow options and using smart algorithms to determine the best choice is called product flow-path optimization.

LLamasoft-ProductFlowPath — Product Flow-Path Optimization Before and After Screenshots (Source: LLamasoft)

Demand Segmentation and Inventory Right-Sizing
One of the biggest sources of variability in the supply chain is demand, and demand can be highly unpredictable. Despite the fact that there are many widely-varying demand patterns, most inventory optimization tools assume that all demand is “normal,” leading to either too much inventory or stock-outs and lost sales. Multi-echelon inventory optimization determines how much inventory must be kept at each level and location in the supply chain to deliver the desired service level at the lowest cost. This analysis includes the inherent supply chain variability on both the demand side and the supply side to identify the lowest total cost inventory stocking solution that meets the service requirements for each product/site combination.

Production Footprint Analysis
Put simply, the “footprint” represents the physical facility and quantity in which each product is manufactured, along with the capacity required to make it happen. Oftentimes demand for products shifts over time to new regions or different quantities, and suppliers and cost structures change as well. As these changes occur, the production footprint should also change to keep in-sync. This may mean investing in additional capacity in certain locations or perhaps completely moving production capacity to other facilities within the network. Modeling the production footprint and analyzing varying scenarios helps a company balance existing capacity with the investment required to add additional production.

Transportation Route Optimization
Transportation route optimization can be done alone or in conjunction with either supply chain optimization or simulation. Using advanced algorithms, transportation routes are defined to minimize the cost of inbound or outbound shipments, while considering realistic cost and constraint structures. This helps answer the questions, “What’s going to happen to our transportation routes when the network design is changed?” or “Could there be a more efficient way to get our product from the manufacturer to the customer?”

Modeling technology can uncover millions of dollars in supply chain savings just by optimizing existing assets and processes. Often simply visualizing existing supply chain structure and flows can reveal hidden inefficiencies and present opportunities for further analysis and optimization.

So the question is: how much “hidden” money might be found in your company’s supply chain?

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 (July 8-12, 2013)

This Week in News | By Adrian Gonzalez • 07/12/2013

My cousin Lenny shared this photo on Facebook (the boys are not us, although the socks and shorts look familiar) with the following comment: “If u know about this game, u lived a great childhood.” The photo brought back so many great memories of my summers in Brooklyn — the concrete heat, the boombox music, the bloody scraped knees…and when it got hot, we grabbed the monkey wrench, opened the johnny pump, and took turns sitting on the gushing water. Yeah, cuz, we lived a great childhood.

Now, this week’s news…

On the technology front, LLamasoft announced a new reference rate tariff based on specifications provided by LLamasoft and created by SMC³. According to the press release:

The SMC³ LTL reference tariff will be accessed directly from LLamasoft Supply Chain Guru and Transportation Guru software and will provide the rate data necessary to help determine the cost and feasibility of new network structures and shipping locations. By incorporating reference rates into their models, LLamasoft customers will be able to better understand how LTL rates will impact their overall strategy, enabling more intelligently-designed supply chain and transportation networks.

Meanwhile, CargoSphere introduced SUDS (Smart Upload and Diagnostics Solution), “intelligent technology that reads external rate data directly from any carrier contract format and loads it into a rate system database.” Here are some details from the press release:

When a contract is uploaded, advanced algorithms and smart reasoning extracts and organizes rates from endless pages of rate agreement contract data. These cutting-edge diagnostic features determine which rates are new and should be added versus rates which are currently in effect and simply need to be updated with revised rate levels. Once added, rates are returned back to the user through an audit feature for verification purposes. SUDS learns contract details and validations as the contract is being processed. Contracts only need to be mapped once and then that information is automatically applied to any subsequent amendments and updates.

As I highlighted a couple of months ago in “The Tipping Point for Natural Gas Long-Haul Trucks,” one of the key constraints in using natural gas trucks for long-haul shipments is the lack of filling stations. But progress continues to be made in this area. Shell and Travel Centers of America announced on April 15th an agreement to develop a nationwide network of liquefied natural gas fueling centers for heavy-duty road transport customers. And this week, Ryder announced that it has opened the first natural gas fueling stations in its North American network (at two of its maintenance and fueling facilities in Orange, California and Fontana, California) to serve both the general public and Ryder lease and rental customers. According to the press release:

The two facilities are part of a larger project which will displace more than 1.5 million gallons of diesel annually with 100 percent domestically produced low-carbon natural gas.

Each Ryder fueling location has three pumps – two Compressed Natural Gas (CNG) and one Liquefied Natural Gas (LNG)…LCNG stations rely on LNG delivered via tanker trailers. As a cryogenic liquid, and due to the extremely cold temperatures of liquefied natural gas, LNG is stored on-site in specially insulated cryogenic tanks. The liquid is then either dispensed as an on-highway fuel for LNG vehicles, or warmed, vaporized, and compressed for fueling of CNG vehicles.

Finally, news from the Bureau of Transportation Statistics and the American Trucking Associations (ATA) raise some red flags about what could happen with trucking capacity and rates if the economy continues to improve. The Freight Transportation Services Index (TSI) rose 1.2 percent in May from April, “driven by growth in shipments by truck and rail accompanying broader signs of strength in the general economy.” The May level is the highest the index has been this year, “and is the second highest all-time level exceeded only by December 2011 and equal to the January 2005 level before the recession.”

Meanwhile, according to the ATA, “in the first quarter of 2013, the turnover rate at both large and small truckload carriers rose due to the improving economy and continued competition for well-trained professional drivers.” Here are some details from the press release:

According to ATA’s Trucking Activity Report, quarterly turnover at large truckload fleets – fleets with at least $30 million annual revenue – rose in the first quarter to an annualized rate of 97% from 90% in the fourth quarter of 2012. The rate was the highest it has been since the third quarter of 2012 when it was 104% and just below the average rate in 2012 of 98%.

“If the economy continues to improve as we expect it to,” [Chief Economist Bob Costello] said, “we’ll see competition for drivers intensify, which will increase not just the turnover rate and exacerbate the driver shortage, but will push costs for fleets higher as well.”

And with that, have a happy weekend!

Song of the Week: “Royals” by Lorde (“We crave a different kind of buzz”)

Note: LLamasoft and Ryder are Logistics Viewpoints sponsors.

Transportation Simulation: Who Needs It?

Transportation Management Systems | By Steve Banker • 06/24/2013

If you have a lawn mower, why would you need a lawn service? If you have an iPod nano and a cell phone, why would you also need an iPhone? If you have a transportation management system (TMS) and a network design tool, why would you need a transportation simulation solution?

A network design tool works in strategic time frames, often a year or more, and answers questions about where manufacturing plants and warehouses should be located, and where particular products should be sourced, made and stored.

TMS does the tactical planning – a time frame of days or weeks – and is the execution tool.

Transportation simulation might be described as an intermediate tool. The time horizon covered by its analysis is shorter than a design tool and longer than a TMS. Basically, these tools take months of actual historical shipment data (forecast data can also be used), loads massive amount of data into the tool (this is truly a Big Data application), and answers the question, “What would have happened if we had done this instead of what we actually did?” The simulation shows what life would have looked like one day at a time. This is a granular view of how busy the DC would be, when transportation service would have deteriorated, and when out-of-stock situations would have occurred.

In recent weeks, I’ve heard three answers to the question of why a shipper needs an intermediate-level transportation solution. At JDC Focus, I heard a presentation on how one of JDA’s customers was using its Transportation Modeler solution (see “Vignettes from JDA Focus 2013”). Toby Brzoznewski, Executive Vice President at LLamaSoft, visited us recently and one of the things we discussed was their transportation simulation tool, Transportation Guru. And I had a detailed conversation on this topic with Chris Johnson, VP of Research & Development at LeanLogistics. LeanLogistics uses its LeanOpt3 (cubed) technology to offer a managed service in this area. Almost all of the analysis that follows is based on my conversation with Chris.

One thing a transportation simulation tool can do is help to validate the output of a network design. Network design solutions, in order to solve the complex problems they address in a timely manner, make simplifying assumptions based upon aggregated data.

But the main thing I wish to focus on is how a transportation modeling tool provides value to the transportation department specifically.

In many transportation departments, simplifying transportation policies have been developed without being tested. Examples include: anytime we can ship intermodal, we will; anytime we can combine two less that truckload shipments to create a 25,000 pound truckload shipment, we will; anytime we can combine less than truckload shipments into a truckload multi-stop delivery, we will. These rules of thumb often go unchallenged. In theory, if the TMS does optimization on a daily basis, the system would come up with an optimized plan that is not always based on these simplifying assumptions. However, Chris pointed out that many TMS solutions have been configured to mirror existing policies and thus do not perform unconstrained optimization. By using historical data to simulate what could have been, LeanLogistics has at times found savings of as much as 3 percent of the freight spend for shippers willing to reconfigure their TMS and remove the artificial constraints.

Secondly, the transportation modeling tools can be used to see what would occur if a company could get their customers to agree to a longer delivery window. For example, if some subset of customers would agree that deliveries within 48 hours would be fine, rather than the current 24 hour delivery window, how much money could be saved? Once the analysis is done, the shipper can go to their customers, show them the savings and say, “If you agree to this, we will not have to raise our prices.”

Finally, this analysis can be used to defend the transportation costs that were incurred. A CFO may not understand why just because demand was 10 percent higher than expected, freight costs went up 15 percent. The CFO may assume economies of scale and not understand that if unexpected demand occurs on particular high cost lanes, costs will not advance in lock step with demand.

In short, if you have both and iPod nano and a cell phone, who needs an iPhone? I’ve discovered I do. If a shipper has both a TMS and the output from a network design study, who would need a transportation modeling solution? A far larger number of companies than currently have access to these solutions.

(Note: JDA Software, LeanLogistics, and LLamasoft are Logistics Viewpoints sponsors).

Guest Commentary: Do You Have a Supply Chain Design Center of Excellence? Your Competitors Do.

Guest Commentary | By Toby Brzoznowski • 05/23/2013

Not too long ago, companies considered supply chain design as a project to conduct once every three to five years—if at all. It was also uncommon for companies to do such analysis themselves, often hiring third-party firms to do one-off studies.

Today, there is a strong and ever-increasing trend of companies making supply chain design a core business function, and using this competency as a competitive weapon for their business. They are using modeling technology to continuously optimize their end-to-end supply chain to improve service levels, identify major cost savings, reduce risk and stay ahead of other companies in their market.

Project vs. Process
What has changed? Why is supply chain design now becoming a core process and business function? Three factors have converged to trigger this switch: technology, business practice and volatility.

Technology: Major breakthroughs in supply chain design technology have enabled modeling to be relevant to many more business functions and at a much more detailed level of analysis. This means that supply chain modelers can now answer questions related to sourcing, production, inventory, transportation, taxes, replenishment, cost-to-serve, etc.
Business Practice: The pace of change within business is at an all-time high. New products are being introduced at a rapid pace. New markets are being entered. New partnerships are being formed. All this change requires continuous modeling and optimization to keep costs and service in order.
Volatility: Change is not just happening within companies. Disruptive changes are occurring all over the globe that can drastically affect corporate supply chains. Increases in labor costs throughout “low-cost” countries, wild swings in fuel costs or adjustments in commodity pricing must all be factored. Weather-based disruptions can quickly wipe out profits if not addressed.

Implementing a Supply Chain Design Center of Excellence
Not every company has a supply chain design center of excellence established with the appropriate mission statements, reporting structures and budgets. Building this supply chain design center of excellence within a business often follows a progression that begins with a small group finding tactical quick wins and leveraging those results to justify the business function.

Here are a few key recommendations for the successful implementation of a supply chain design center of excellence:

Quick Wins: Even though supply chain design can identify major breakthroughs in cost savings or service, the recommendations can often be very disruptive and time-consuming to implement (close two factories, open four new DCs, rationalize 200 products, etc.). In order to establish early credibility, many companies will identify quick-win projects that are much easier to implement and still deliver significant cost benefits (product flow-path, inventory right-sizing, DC-customer assignments). Quick multi-million dollar wins can gain executive attention and establish early credibility for the supply chain designers, and are often used to justify further investment in staff and technology.
Shared Service Center: Supply chain design should be able to see across the entire business to optimize the true end-to-end supply chain and not just a specific business unit or business function. Shared service centers can pool talent and technology to provide analysis capabilities to the entire organization. This organizational structure can help avoid the pitfalls of local bias or politics and remain focused on data-driven business solutions.
Parallel Focus on Game-Changers: While one part of the team is focused on tactical wins, another effort should be trying to break down historical legacies to explore what is truly possible. When encouraged, supply chain designers can remove preconceived business constraints and design new green-field supply chain operations that could lead to game-changing new business practices and key competitive advantage.

As enterprises elevate supply chain design to a key continuous function within the business, the technology and staff will pay for themselves time and time again and create a true competitive advantage by more rapidly adapting to volatile and ever-changing market conditions.

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 Michigan-based technology companies. He is a graduate of the University of Michigan and a frequent presenter at supply chain and strategic sourcing events.

Guest Commentary: Transportation Network Design: Are You Optimizing an Inefficient Supply Chain?

Guest Commentary | By Sara Curtis • 02/19/2013

Many supply chains are the product of history, put together over time as a company grows with expanding product lines and emerging markets. In larger successful companies, supply chains can grow to enormous complexity, encompassing billions of dollars in assets and deeply ingrained processes. If an organization continues to gain market share, acquires other companies and strengthens its brands, you might assume that its supply chain and transportation network are functioning pretty well, right?

But what if it’s not a great supply chain? What if it’s simply an optimized version of an inefficient supply chain? It’s true that the company’s TMS makes sure that transportation is on-time and costs are under control, and the WMS enables optimal picking and placement of the products, but that doesn’t change the fact that the end-to-end supply chain operation may at best be sub-optimal or at worst be broken altogether.

It is the “design” of a transportation network that can unleash its true potential. So how do you design a full-potential transportation network?

For most transportation and logistics professionals, this is a challenging question to answer because it requires visibility into the full supply chain network and the balancing of numerous performance metrics, including service, cost, complexity, sustainability and risk. The answer is being able to isolate your legacy infrastructure and model the data with a ‘what if’ freedom. Transportation network design is a rapidly-growing analysis approach that enables companies to create digital “models” of their end-to-end supply chains to evaluate new strategies and identify breakthrough performance improvements. By integrating transportation route optimization with network optimization and simulation, you are able to:

Simulate near-term cost and service improvements to existing transportation operations
Identify longer-term strategic improvements to the global transportation network
Run continuous what-if analysis of new strategies, disruptions, constraints and business challenges

Here’s a real-life example of how transportation network design can help balance DCs and transportation:

Business issue: Companies with extensive distribution networks struggle to determine the correct number and placement of distribution centers for optimal outbound distribution. This involves finding the proper balance between transportation costs, which are lower with more distribution centers, and facility fixed costs, which are lower with fewer distribution centers.

Supply chain design approach: Using existing store locations and demand as the primary input, network optimization and transportation optimization engines can solve for the lowest cost distribution network quickly and easily. Network optimization performs an analysis to determine the number of geographically optimal distribution centers, as well as determining the optimal location. The transportation optimization program develops multi-stop routes for inbound or outbound transportation. It considers multiple variables to form cost effective transportation routes.

Example and benefits: A U.S.-based retailer with approximately 600 stores in the eastern half of the U.S. wished to evaluate the fixed distribution center operating cost and transportation route cost by varying the number of distribution centers from one to eight.

With a single distribution center, the facility operating cost is at minimum. As distribution centers are added into the network, the outbound “last mile” transportation costs decrease – the lowest outbound transportation cost occurs with the most DCs because they are closest to the end customers. In network optimization, each DC network is its own scenario, allowing maps and summary statistics to be viewed side-by-side.

Here are a few other ways companies can leverage transportation network design:

Carriers and dedicated and private fleets can haul more freight per mile with greater asset utilization, consolidating loads and creating continuous moves for higher operating efficiency. They can also understand their cost-to-serve.
Shippers and retailers can determine the ideal mode and flow path for each product or business unit, using predictive analysis to determine inventory position, timing and needed capacity.
3PLs and Intermediaries can identify and test stand-alone or collaborative best practices for their customer base and demonstrate proficiency in design as well as management.

Summing It All Up
Supply chains are built over time; it’s a trap for a company, even a successful one, to assume that what got them this far will get them where they need to be. The technology to design the optimal transportation network is readily available. Companies that deploy this technology can quickly identify alternative transportation networks that can continue to maximize service and profits in the face of a changing environment.

Sara Curtis is the Director of Transportation Products at LLamasoft. She manages the Transportation Guru business unit, focused on delivering high quality transportation optimization solutions that are fully integrated with LLamasoft’s network optimization and simulation capabilities. Sara has a bachelor’s degree in industrial engineering from Purdue University and a master’s degree in engineering systems management from Texas A&M University. She has more than 20 years of experience in software development and supply chain design, including time at Exxon, i2 Technologies and Staples. Ms. Curtis has worked with companies across diverse industries, through mentoring, teaching and consulting, to further their efforts and build their expertise in supply chain and transportation network design.

This Week in Logistics News (October 22-26, 2012)

Logistics Service Providers | By Adrian Gonzalez • 10/26/2012

Last year, Halloween greeted us with a snow and ice storm. This year, it greets us with Hurricane Sandy. This is too much trick and not enough treat for me.

In other news…

CH Robinson, SAP, and UPS all reported third quarter 2012 financial results this week. You can read the press releases for all the details, but here are some highlights:

CH Robinson: Total net revenue increased 2.3 percent from Q3 2011. Truck net revenues (which includes truckload and LTL) increased 2.1 percent; LTL net revenues increased about 11 percent. The company’s average truckload rate per mile to customers was unchanged in Q3 2012 compared to Q3 2011. Net revenues for the company’s Other Logistics Services segment, which includes transportation management services, customs, warehousing, and small parcel, increased 16.6 percent, due primarily to transaction increases in its transportation management and customs net revenues. Meanwhile, net revenues for Air and Intermodal services declined 9.0 and 4.4 percent, respectively.

SAP: Total revenues increased 16 percent in Q3 2012 (10 percent in constant currencies) compared to Q3 2011. Software revenues increased 17 percent (12 percent at constant currencies), while revenues from Cloud, SAP HANA, and Mobile experienced triple-digit growth. “SAP had a strong performance in the Americas and solid double digit growth in APJ…Key industries such as retail, health sciences, manufacturing and energy as well as continued expansion of sales through SAP partners also contributed to the third quarter results.” Including Ariba, SAP now expects full-year 2012 non-IFRS software and software-related service revenue to increase in a range of 10.5% – 12.5% at constant currencies.

UPS: Total revenues declined 0.7 percent in Q3 2012 compared to the same period last year. U.S. Domestic revenue increased $94 million over Q3 2011, driven by a 3.7 percent gain in daily package volume, due in part to rapid e-commerce growth. The International segment produced record Q3 operating profit of $449 million, driven by export package growth, network changes and currency translation. “For the first time in several quarters, Asia exhibited growth in Export package volume…[and] although the rate of growth in Europe has slowed, it remained positive.” Operating profit decreased $15 million in the Supply Chain and Freight segment, “as declines in Forwarding were partially offset by improvement in UPS Freight…The Freight Forwarding unit was pressured by overcapacity in the market, especially out of Asia.”

In other 3PL news, C.H. Robinson Europe BV announced that it has been granted Authorised Economic Operator (AEO) certification by Dutch customs, which officially regards the company as a reliable trade partner. As reported in the press release, “The certificate enables clients of C.H. Robinson Europe BV to benefit from several advantages with regards to Customs procedures such as prior notification for import and export exams, priority treatment in the event of a cargo exam, and fewer physical exams and document reviews.”

Meanwhile, FedEx Freight has enhanced its Canada and Mexico services, “with expanded geographic coverage and upgrades to its shipping tools that assist customers in processing less-than-truckload (LTL) shipments.” The company opened a new service center in Rochester, NY that connects cross-border shipments to and from Toronto and Montreal, and opened two new service centers in Mexico, in Culiacán and Silao. Customers can also now process cross-border LTL shipments to and from Canada and Mexico through FedEx Ship Manager Software, FedEx Ship Manager® Server and FedEx Web Services.

On the technology front, LLamasoft announced that MK Capital and Nike have invested in the company, along with Augment Ventures and First Step Fund. The company also announced that it has established a strategic partnership with Nike to co-develop supply chain solutions that offer both logistics and environmental benefits. Here’s a quote by Hans Van Alebeek, Nike’s Vice President of Global Operations & Technology, from the press release:

“Innovation and sustainability are core to NIKE, Inc.’s operations and this new partnership with LLamasoft represents unique opportunities in both of these areas. Through working with LLamasoft as a customer, we recognized the potential to collaborate on innovative supply chain solutions that offer real time logistics benefits and the potential to positively impact our efforts around carbon reduction.”

Back in February 2008, in “Inconvenient Truths About Green Supply Chain Management,” I wrote that “there’s a limit to what [companies can] accomplish with current ‘green’ initiatives because today’s products, manufacturing processes, and supply chains were not designed with sustainability in mind…we’re trying to fix the environment while keeping the production lines of a fast-growing, global economy running…[with] supply chains that were not designed with sustainability as a criterion.” This partnership between LLamasoft and Nike is the latest example of how companies are addressing sustainability where it matters most: at the design stage, of both products and supply chains.

In related news, “Wal-Mart has given global suppliers five years to comply with its environmental rules or risk being pushed off U.S. shelves,” according to a Reuters article. Here are some additional excerpts from the article:

The standards set in Wal-Mart’s “sustainability index”, which has helped to burnish an image tarnished by criticism from labor groups and local communities, have already been embraced by 500 of the world’s major consumer product makers.

The retailer said that by the end of 2017, U.S. Walmart and Sam’s Club stores will get 70 percent of their goods from global suppliers that use the sustainability index.

“This will send a clear message to the Walmart supply chain that if you want to grow and partner with us for the long term, you will engage with us on the sustainability index,” Wal-Mart Chief Executive Mike Duke said in a speech in Beijing.

While there’s been virtually no talk of sustainability in the US presidential campaign, other than brief mentions of renewable energy, it’s clear that many companies in the business community, particularly those that embraced sustainability years ago, continue to move forward with their efforts in this area.

Okay, time to bring in the patio furniture and clean the gutters. Have a great weekend and stay safe!

Song of the Week (as heard in Apple’s new iPod commercial): “Yeah Yeah” by Willy Moon.

(Note: CH Robinson and SAP are Logistics Viewpoints sponsors)

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