Posts tagged optimization

Moving Towards a Circular Economy

When you think about accelerating impacts and long-term solutions to current supply chain challenges that impact the 3P’s (people, planet and profit), we need to adopt and develop sustainable frameworks with a holistic life-cycle perspective. There is a ton of innovation happening in the CPG space (Levi’s, Unilever, PepsiCo, etc.)

Shifting from the current ‘take-make-waste’ linear model to the circular economy is critical for businesses to continue to thrive and meet society’s needs. Waste volumes are projected to increase from 1.3 to 2.2 billion tons by 2025, and with nearly 9 billion consumers on the planet including 3 billion new middle class consumers by 2030. The challenges of addressing waste and meeting increasing demand are unprecedented. Therefore it is imperative businesses continue to re-evaluate raw materials, design, manufacturing, consumption, and end of life to keep materials and products continuously flowing through closed loop systems.

How is your company innovating in product life cycle management from design and inception to sustainable product packaging? How are you personally adopting a sustainable mindset in your home, the daily choices you make as a consumer to move toward a circular economy? The bigger question is how are YOU INFLUENCING this change?

The Surprising Habits of Original Thinkers

How do creative people come up with great ideas? Organizational psychologist Adam Grant studies “originals”: thinkers who dream up new ideas and take action to put them into the world. In this talk, learn three unexpected habits of originals — including embracing failure. “The greatest originals are the ones who fail the most, because they’re the ones who try the most,” Grant says. “You need a lot of bad ideas in order to get a few good ones.”

The Amazon vs. Retail Battle


Source: The Amazon vs. retail battle: Explained 

It’s no secret that Amazon is revolutionizing the retail industry. But what does that actually mean?

Which retailer is Amazon targeting now? Amazon newest target isn’t a retail chain at all — it’s your local convenience store.The company rolled out a new service today called Amazon Instant Pickup, which lets customers order basics like chips, soda and toothpaste. You can then pick them up from an Amazon locker in just two minutes.

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Isn’t mimicry the sincerest form of flattery? Not if you’re a retailer that wants to stay in business. Just ask Dick’s Sporting Goods (DKS). Dick’s earnings report disappointed Wall Street on Tuesday. The retailer lowered its full-year profit forecast today because of “a challenging retail environment.” Its stock fell more than 20%. Sound familiar? Last month, Amazon filed a patent to launch a competing meal-kit delivery service. Blue Apron’s shares plunged 11% following the news. And grocery stocks got clobbered after Amazon announced plans to buy Whole Foods (WFM) for $13.7 billion back in June.

Is Amazon a death sentence for traditional retailers? Not necessarily. Retailers like Home Depot (HD) are surviving by selling things you can’t buy on Amazon. Today, Home Depot reported record sales last quarter and bolstered its outlook for 2017. Home owners and professional builders alike still prefer to go to stores to test out home products, especially big ticket items like flooring and appliances.

A Better Path to Supply Chain Excellence


Source: A Better Path to Supply Chain Excellence

Abe Lincoln once told a story about a frontiersman who had lost his way in an uninhabited region on a dark and stormy night. The rain was torrential and was accompanied by terrible thunder and lightning that encased the evening sky like an electric spider web. To increase his trouble his horse halted, being exhausted with fatigue and fright. Just then a bolt of lightning struck a neighboring tree, and the ensuing crash finally brought the man to his knees. He was not an expert in prayer, but his appeal was short and to the point: “Oh, good Lord, if it is all the same to you… give us a little more light, and a little less noise.”

Small to mid-size manufacturing companies sense they are in trouble. Customers want more—more variety, more convenience, more flexibility and more service. Yet satisfying them adds even more cost and complexity at a time when pressures are felt from tight labor and increasing raw material prices. Big players have steadily acquired new skills needed to identify and capture the difficult improvements. But with fewer resources, smaller companies aren’t always able to run the business and keep up with the competition at the same time.

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To make matters worse, the manufacturing industry is awash with wonky jargon that serves to complicate and intimidate as much as it does educate. Businesses without legions of in-house resources must worry about how to adopt “circular economy” business models, migrate to “smart” manufacturing, leverage Industry 4.0 technologies, and harness the Internet of Things. Whitepapers by consulting firms swirl about in a never-ending vortex looking for a desk to land on.

In short, there is a lot of noise out there, but not so much light.

The companies that continue to achieve competitive distance do so because they drive only those supply chain improvements that truly matter to the customer and the bottom line. Those that are falling behind don’t necessarily need to “digitize” their supply chains as much as they need to stop making tradeoffs between functional competencies. For example, heads of manufacturing try to rationalize overcapacity issues in their plants, procurement officers consolidate their purchasing to leverage scale, and logistics managers seek to cut costs and improve delivery rates at their scattered warehouses. Such piecemeal efforts, however, won’t make much difference unless they’re part of a broader operational-improvement effort.

Too often, improvement in one area translates into chaos in another.

The answers for small operators who don’t have the resources to keep up with the Joneses lie not in adopting management fads but in shoring up common areas of opportunity that are ripe in value. Businesses that can execute these supply chain strategies have an opportunity to become the overall market leaders.

Minimize Self-imposed Volatility

If there is one common headache shared across all businesses, it is missed forecasts. There are, as the old joke goes, two methods to get an accurate forecast, but neither one works. A big reason for this is that forecasts are typically cannonballed by two forces of volatility: one that is market-driven and the other that is self-induced. Companies that have straightened out their forecasting woes have rooted out their own volatility drivers.

One real example: Company A discovered that 30% of its forecasting problems stemmed from stockouts. Upon further review, the underlying reason for the outages was the plants had no knowledge of sales promotions and thus had little reason to create inventory. The takeaway was to minimize the self-inflicted chaos and then invest in reactive measures like production flexibility to handle the rest.

Prioritize Key Customer/Product Combinations

Collaborations between customer and manufacturer have proliferated in recent years as supply chain improvements have become exponentially harder to come by. Companies without a sales and operations planning group can barely find the time to find the right mix of products and services to protect their customer bases.

However, in a short amount of time (at little to no investment), an operator of any size can implement a “consumer value” approach, which means that customers are prioritized based on profitability and strategic importance while also sorting products on volume demand variability. The “sweet spot” focus for the business is found at the intersection of these products and customers, which should then be serviced at the highest priority.

Periodically Redesign Your Logistics Network

Conventional wisdom states that concentrating inventory in fewer distribution centers leads to inventory savings. However, centralization usually increases logistics costs from underutilized capacity and longer distances. Given the significant position of transport costs on most P&Ls, suppliers can’t afford to ignore inefficiencies in their logistics operations. A company should periodically design its network (every few years) based on precise knowledge of what customer types need and which activities add value.

To maximize on the optimum profitability, businesses intending to compete must lean on a robust model that incorporates all relevant variables and constraints. Supply chains can typically reduce logistics costs by up to 7% while maintaining or even raising service levels with an in-house linear program model.

The pace at which supply chains have been incorporating new business models has greatly accelerated over the past 10 years as gains in technology have boomed. Now more than ever, supply chain management is evolving into a cross-functional activity. Teams will have to interact more closely with other functional areas to identify the factors that influence self-induced volatility, customer profitability and network hemorrhaging, and agree on actions to manage them better.

The answer in this era is not subscribing to complicated precepts but being able to translate information into action and using language that is easy to understand.

Take it from Honest Abe.

The Two Levers of Inventory Optimization


Source: Supply Chain Comment: The Two Levers of Inventory Optimization

Back to present day and the supply chain. Two powerful levers a company can use to optimize inventory are “Working Capital” and “Customer Service Levels.” Through the effective use of these levers, you can free trapped working capital while improving service levels.

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Your company’s inventory efficient frontier is a tradeoff curve between working capital and service level and represents the currently achievable service level at any corresponding inventory investment. At its most basic, start with a piece of graph paper and plot your current service level on the x-axis and current inventory level on the y-axis. Chances are you are not on the inventory efficiency curve that is theoretically possible given your current operating capabilities. When you remove inefficiencies, failures, etc. and estimate how much your service level will go up and down with changes in inventory investment you end up with a curve – your current inventory efficient frontier curve. Organizations can slide up and down along this curve by manipulating the service and inventory levers (see Figure 1).

However to create real value you have to be able to shift the inventory efficient frontier so that higher service levels can be achieved without increasing inventory or the same service levels can be achieved with less inventory. Multi-echelon Inventory Optimization (MEIO) allows you to truly optimize your inventory across the entire supply chain and enables you to shift to a new efficient frontier for your entire supply chain.

By modeling the end-to-end supply chain, MEIO determines not only the optimal inventory to carry at each location but also at which locations each item should be carried. MEIO looks across sales channels, distribution tiers, and even types of inventory (raw, WIP, FG) to understand how best to minimize total inventory while still providing the desired customer service levels. MEIO can take you into unexplored territory providing reductions in working capital of up to 30 percent or more. For most companies that amounts to millions of dollars in savings annually. That is an impressive use of levers.

What is important to understand is that the supply chain is a living, breathing and constantly changing organism. Your optimal inventory strategy for this month might be suboptimal next month due to changes in demand or supply, changes in competition or market health, or a variety of other factors. Modeling your end-to-end supply chain inventory is not a “one and done” activity and therefore there is always opportunity to shift that efficient frontier into new and undiscovered territory.

Do you understand your company’s service level – working capital tradeoff? Can you model your end-to-end supply chain to determine your optimal inventory locations and levels?

About the Author
Henry Canitz is The Product Marketing & Business Development Director at Logility.