It’s that time of year when supply chains that support the retail sector are tested. Planning, Procurement, Inventory Management and Logistics teams all have to work together to be successful. It all starts with placing bets on what, where and when consumers are going to buy during the holiday season months in advance. Some of the questions that have to be answered are: What will be the hot items for the holiday season? Will consumers purchase in-store or on-line? When during the period between November 1st and December 31st will consumers make their purchases?
As an example companies that have manufacturing capacity constraints in the fall, the Demand Planners have to lock in their forecasts in May or June. Once the demand plan is locked in, then the downstream supply chain teams can make their plans and weigh options to fulfill the forecast. Supply Planners weigh In-House versus Contract Manufacturing. Securing contract manufacturing early is less expensive and can be the difference between being in-stock and out of stock. In addition, if there are any long lead time raw materials needed to produce the final products they have to be bought by the Procurement team as early as summer time. You can increase the lead times needed if any raw materials or finished products have to be imported from overseas.
Once the products are produced, they have to be stored in warehouses until they need to be delivered to your local store shelf or your doorstep. Sometimes the standard warehouse that a producer uses runs out of capacity during peak season, so overflow warehouses have to be contracted. Determining where to stage inventory is one challenge that Logistics professionals have to handle in an evolving environment with on-line shopping continuing to increase in comparison to in-store shopping. Cyber Monday sales this year hit a record of $3.45B and is almost on par with in-store purchases made on Black Friday. The analysis can get murky because some consumers purchase on-line and pick-up in-store.
When you shop this holiday season either in-store or on-line, think of the Supply Chain “elves” behind the scenes making your products available at your local store or delivering them to your doorstep. The products don’t get to you by accident, it takes months of work to make every purchase possible. Happy Holiday Shopping!!
December 1st, 2015 5:11 pm Category: Distribution, Global Supply Chain, Green Network, Inventory Management, Network Design, Optimization, Optimization Software, Scheduling, Solver Optimization, Supply Chain Improvement, Supply Chain Optimization, Supply Chain Planning, Transportation, Vehicle Routing, Warehouse Optimization, by: Gene Ramsay
Profit Point has been helping companies apply mathematical techniques to improve their business decisions for 20 years now, and it is interesting to review some of the advances in technology that have occurred over this time that have most enabled us to help our clients, including:
• The ability for companies to capture, store and access increasingly larger amounts of transaction and anecdotal data that quantify the behavior and motivation of customers, manufacturers, suppliers and other entities
• The improvement in analytical capabilities that help make optimized choices, in such areas as the solving mixed integer optimization problems, and
• The improvement of computing technology, allowing us to perform calculations in a fraction of the time required just a few years ago
A recent post on the Data Science Central website highlights the use of advanced techniques based on these advances by on-line marketplace Amazon, which is generally acknowledged as one of the most tech-savvy companies on the planet. 21 techniques are listed that Amazon uses to improve both their day-to-day operations and planning processes, including supply chain network design, delivery scheduling, sales and inventory forecasting, advertising optimization, revenue / price optimization, fraud detection and many others. For a complete list see the link below:
Like our customer Amazon, Profit Point is committed to using these techniques for the benefit of our clients – we have been concentrating on implementing business improvement for our clients, including optimization in various forms, since our very beginning. Are you, like Amazon, using the best methods to seize the opportunities that are available today?
I was touring with friends and a Food Science intern around the Bay Area last weekend. On Saturday they visited my home town of Napa and we did some wine tasting. We also stopped by the Culinary Institute of America in St. Helena just in time to be asked to judge the end of year Dessert Intensive of CIA’s latest cohort of students. It was a tall order but someone had to give the students feedback.
On Sunday, we took in Fisherman’s Wharf and the wrap up for the weekend was a stop at Ghirardelli Square for dessert. I knew what I wanted on this visit — Ghirardelli’s “Warm Brownie Sundae”. All day I was telling my friends about it and offering to share some with them. We finally get to Ghirardelli Square, waited in line for 20 minutes and when it was our turn to order the cashier says they are out of the Ghirardelli brownies. WHATTT!!??!! And then he adds sheepishly they’ve been out for TWO WEEKS. I was disappointed on so many levels but as a Supply Chain professional I was horrified. How can you allow yourself to be stocked out of one of your Signature Items for TWO WEEKS in Ghirardelli Square???? I have reached out to a former co-worker who used to work in their supply chain but no response as of the writing of this blog. So here is my public plea…
Please Ghirardelli, if you need some Supply Chain assistance call us at Profit Point. We can do a 2 or 3 day Business Process Assessment and make recommendations to improve your Supply Chain Operations.
A few weeks ago, Steve Westphal with Edge Network posted a piece on our blog about the benefits of SKU Optimization. This past week, Packaging Digest posted the results of a survey of the beverage industry that suggests new packaging may be one of the key drivers for profitability this year. The survey also illustrates how new packaging can cause the proliferation of SKU’s. One more reason why industry leaders maintain an ongoing SKU Optimization process within their supply chain.
If you’d like to to know more about SKU Optimization and how it can impact your bottom line, please contact us.
June 16th, 2011 9:00 am Category: Enterprise Resource Planning, Global Supply Chain, Inventory Management, Press Releases, Supply Chain Improvement, Supply Chain Planning, Supply Chain Software, by: Editor
Profit Point, the leading supply chain optimization software and services company, today announced the release of its Profit S&OP software to complement it’s S&OP consulting services. Profit Point’s combined S&OP solution provides business decision makers with the process and tools to manage and optimize sales and operations planning across the supply chain.
The Profit S&OP software tool is fully-customizable to meet the needs of supply chains across all industries and is designed to improve tactical planning for the key decision makers across a company, including finance, sales, manufacturing, logisitics and supply chain. The software provides a centralized dashboard to gain insights and control over a company’s supply chain, including features to enhance collaborative forecasting and improve manufacturing, distribution, and inventory decisions.
“Global manufacturers struggle to accurately plan for global demand across their product lines in a timely manner,” noted Alan Kosansky, Profit Point’s President. “Our S&OP solution solves this problem with a combination of effective processes and a shared planning tool that provides one set of numbers for the key stakeholders across the entire supply chain.”
Using Profit Point’s S&OP solution, manufacturers can coordinate with their supply chain planners across the globe to build accurate, detailed manufacturing and distribution plans quickly and integrate with point-of-sale demand tracking systems. And, the software connects with existing ERP systems, such as SAP® and Oracle®, so analysis and decisions are up to date across the entire organization.
“Improved planning can help any large manufacturer reduce inventory excess and capital risk.” said Jim Piermarini, Profit Point’s CEO. “But the key to successful planning includes the right technology and the right process to align employees with the company’s strategic objectives.”
Profit S&OP has an integrated optimization engine that seamlessly drives the best scenarios to the forefront of a tactical planning sessions. Throughout the process, decision makers are able to visualize and test multiple future scenarios to achieve a collaborative, cross discipline decision making process. Key features in the software include the ability to automatically generate an optimal tactical plan down to the bill of materials (BOM) level, integration with existing ERP data warehouse, multi-period planning horizon, scenario analyzer to systematically assess multiple future scenarios, complex BOM exploration and the ability to visualize plans, timelines and bill of materials to correct bottlenecks and reduce excesses.
To learn more about Profit Point’s sales and operations planning software and services, call us at (866) 347-1130 or contact us here.
About Profit Point:
Profit Point Inc. was founded in 1995 and is now a global leader in supply chain optimization. The company’s team of supply chain consultants includes industry leaders in the fields infrastructure planning, green operations, supply chain planning, distribution, scheduling, transportation, warehouse improvement and business optimization. Profit Point’s has combined software and service solutions that have been successfully applied across a breadth of industries and by a diverse set of companies, including Dow Chemical, Coca-Cola, Toys “R” Us, Logitech and Toyota.
Did you miss Jim Piermarini talk at CSCMP about Logitech’s supply chain distribution methodology? For those that are interested, we are posting the slide deck here for your review. To download the complete presentation click the image below:
CSCMP’s Annual Global Conference is in full swing and a couple of our team members are on-site in San Diego.
Jim Piermarini will be speaking at the event tomorrow along with Michele Hermann, the VP of Global Operation Solutions for Logitech. Please stop by and hear Jim and Michele talk about our efforts to help Logitech improve its supply chain and inventory. You can find the full details below.
And, if you’d like to meet up with Jim at any other time during the conference, you can send us a note here.
Logitech: A Better Way to Assign Inventory to Backlog Orders
Tuesday, 9/28, 3:30 pm to 5:00 pm
- Learn techniques to control assignment of inventory to backlog orders.
- Gain an understanding of the challenges of replacing enterprise resource planning (ERP) functions with offline decision systems.
Michele Hermann, Vice President Global Operation Solutions, Logitech
Jim Piermanni, Chief Executive Officer, Profit Point, Inc.
Logitech is a world leader in personal peripherals, driving innovation in PC navigation, Internet communications, digital music, home-entertainment control, gaming and wireless devices. With a history of fast-growing distribution channels and a product line that is frequently being updated, Logitech’s key supply chain challenges are similar to those of many other consumer electronics heavyweights. Its product life cycles are relatively short and consumer demand can be fickle. But when Logitech gained global, mass market status with customers ranging from Walmart and Best Buy to direct online sales, its supply chain challenges were compounded.
With mounting distribution challenges, Logitech engaged Profit Point to bridge the gap between their ERP and their real world need to compete. Click the link below to access the case study:
Despite our egalitarian mindset in the U.S., when it comes to customers, let’s face it: They have never been ‘created equal.’ Certainly for decades, manufacturers and distributors have offered better pricing to some customers than others. We’re all familiar with quantity break pricing, column pricing with different discount levels for different categories of customers, and contract pricing. And who doesn’t visit the local supermarket today and notice the ‘buy 3 get 1 free’ offers to encourage us to increase our purchases?
Volume is valuable and warrants better pricing, we are in the habit of believing. And most often this is true. Not only does a high-volume customer drive our buying power with suppliers by helping us reach the next price break level on the purchasing side, but it can make each sale more profitable: The cost of servicing 10 orders that result in a sale of 100 units can be 10 times as great as the cost of servicing a single order for those 100 units.
This bias towards volume underlies traditional customer ranking methods. But many manufacturers today are taking a closer look at these policies and finding them lacking. Instead, they are engaging in a detailed cost analysis effort called ‘cost-to-serve.’ While cost-to-serve can be a very broad subject covering product costs, location costs, transportation costs and service costs, to name a few, this article will take a look primarily at customer costs.
It’s not that heretofore companies have ignored factors that shade the degree of profitability of a large client. Many firms, presented with the opportunity of doing business with, say, Wal-Mart or the federal government, may question whether it’s really worth doing. They’re thinking about the overhead of handling such a client and the cost of meeting client demands – with slim price margins.
What’s different today is that companies are trying to measure these costs precisely and to make informed, scientific decisions based upon them. Whether they engage consulting firms who have developed methods for tackling this measurement, purchase software to help them out, or devise their own internal approach, more and more manufacturers and wholesalers are gathering detailed costs and trying to apply them to decisions about their customers.
Consumer goods companies, for instance, are recording metrics such as the true cost of customer service. How much support time does this customer require of the customer service organization? How much sales time to we devote to him? Does the customer frequently return merchandise, and if so, what is the cost of processing that return? In the case of consumer goods manufacturers, we might also look at custom-branded merchandise: What is the true cost of providing private labeling for a retailer? Are we really capturing in the product cost all of the special handling required by the purchasing and distribution organizations? All of these costs are very important is assessing a customer’s true profitability.
On the other side of the equation, there may be some sales and marketing benefits that a customer brings, and these, too, should be weighed. Does the name ‘Wal-Mart’ on our client list provide positive benefit to the organization? Is another client who doesn’t seem to purchase very much an outstanding reference for us who sends other potential customers to us? If a business can establish a process and gain agreement across the organization on measuring true costs and benefits, it can define policies to more precisely control bottom-line revenue.
Certainly, one of the first decisions that can be made, once true costs are measured and accepted by an organization, is to eliminate customers who are really unprofitable. But cost-to-serve can also come into play in other ways. We may want to devise strategic programs that nurture our best clients to safeguard their business. We may hold special events for them or assign dedicated reps, for instance.
One of the situations where cost-to-serve becomes a critical tool is in inventory allocation, particularly in an inventory shortage situation. When there is insufficient inventory to meet demand, most manufacturers will want to serve the most valuable customers first.
This frequently comes into play in segments of the technology industry, such as computer peripherals, typically with the launch of a popular new consumer product. An extreme example of this might be the launch of a new Wii game player at the start of the holiday season. Armed with true cost-to-serve data, manufacturers could make allocation decisions scientifically to spread the available inventory across the order pool while maximizing profit.
You might ask whether this process can be automated today. The answer is ‘partially.’ Allocation can certainly be automated, but collecting cost-to-serve data on customers usually involves some manual steps, because most companies don’t have all the systems in place to collect this data automatically (and even with sophisticated systems, the data may not be collected in exactly the way you wish.) Some spreadsheet work may be required. Once the spreadsheet is in place, however, the process becomes straightforward.
Perhaps you want to rank customers sequentially from top to bottom, or group them into ‘profit’ segments. Once that is done, an algorithm can be designed to optimize the allocation of inventory according to the rules tied to those rankings or segments. The allocation algorithm might be designed to work directly from the spreadsheet, as well, automating even more of the process. In any case, executing the service decisions in accord with true costs ensures we are protecting our most valuable customers.
The application of cost-to-serve to inventory allocation takes on an even more interesting aspect for consumer goods manufacturers who ship to retailers. As those of us familiar with this industry are aware, most large retailers have very specific guidelines defining how suppliers must do business with them. The retailers specify how an order must arrive – shipped complete, packed by store, etc.; when it must arrive – ‘arrive by’ date; and a variety of paperwork details including design, content and placement of shipping labels and bills of lading. Associated with each of these requirements is a dollar penalty the supplier will incur, taken as a deduction from the supplier’s invoice, for violation of the guideline.
For a consumer goods manufacturer, these penalties or ‘chargebacks,’ can mean the difference between a profitable client and an unprofitable one. In this situation, the ability to allocate inventory defensively, to minimize chargebacks (or at least make an informed scientific decision to incur them) is critical. A powerful allocation engine, in an inventory shortage situation, can maximize profit by factoring potential chargeback costs for late or partial shipment into the equation. In this case, the allocation engine ensures that the cost to serve the retailer is as low as possible.
In addition to retailer penalties, another aspect of ‘allocation-according-to-true-cost’ involves inventory fulfillment location choices. If a company operates a single distribution center in Los Angeles and imports all its product from Asia, there may be only a single fulfillment option. But for the wide majority of consumer goods manufacturers who import from Asia, service clients nationwide, and operate either multiple distribution centers or a distribution center located in, for instance, the Midwest, there are several options and a variety of questions
If inventory is constrained at the facility that would normally handle a particular customer’s order, should the order be fulfilled from an alternate facility? To make this decision, we need to factor in not only the additional shipping cost but also to weigh that cost against the value of the customer. There may be low profit customers, viewed from the perspective of cost-to-serve, for whom we do not want to make this investment. In the case of a retailer where a potential penalty is involved, the decision might be made dynamically based on a comparison of the chargeback incurred against the additional cost of shipping. If the chargeback fee would be higher than the additional shipping cost, it may be worthwhile to use the alternate distribution center.
This type of on-the-fly fulfillment decision is often called ‘dynamic allocation.’ Another example of dynamic allocation involves intercepting shipments in transit to, say, our hypothetical Midwest distribution center. Least cost fulfillment might dictate fulfilling west coast orders by pulling off inventory required to fulfill them at a deconsolidation facility near the port – before a shipment heads out to the distribution center in the Midwest. Under what conditions is this the least-cost choice? An inventory allocation algorithm based on cost-to-serve can make this decision mathematically, using rules the manufacturer defines.
It’s important to emphasize that the decisions on exactly how to apply cost-to-serve data to inventory allocation will depend on the philosophy of the individual company. For this reason, such allocation solutions are often unique and are adjuncts to the standard capabilities of order management systems. Leading-edge firms who are structuring allocation based on true costs typically do so via point solutions that supplement their central transactional systems.
Profit Point, as the name suggest, provides these point solutions and integrates them into SAP, Oracle, and other order management systems to help clients make the best, most profitable allocation and customer decisions. Our expertise in this area can help clients drive maximal profit to the bottom line.
This article was written by Cindy Engers, a Senior Account Manager at Profit Point.
Profit Point, a leading supply chain optimization company, today announced the introduction of Profit Fulfillment, a robust and highly-configurable software tool to help business managers determine an optimal backorder fulfillment and product shipping schedule.
“Just-in-time manufacturing has seen significant growth in the past 15 years, but the challenge of balancing inventory, backlog and service levels persists,” noted Jim Piermarini, Profit Point’s Chief Technology Officer. “Our clients were looking for a solution to help analyze these trade-offs and after real-world testing, we have a cost-effective solution that enables business managers to improve their distribution processes immediately.”
Profit Fulfillment can improve any distribution channel, but it is particularly useful when there are backlog orders to multiple customers, and it is important to determine which customers should get their orders filled immediately and on time, and which customers should enter the backlog queue and for how long. Ensuring that order fulfillment and shipment scheduling departments are executing designated functions consistently with a company’s overall business objectives can have a significant impact on profitability and customer satisfaction.
“Our clients include high-demand, short-cycle product manufacturers as well as more traditional long-cycle manufacturers,” said Piermarini. “And with unpredictable economic conditions, it was essential that we design this application to be highly configurable.”
Profit Fulfillment enables distribution managers to optimize order fulfillment processes consistent with a company’s overall strategic business objectives. It allows decision makers to prioritize customers, implement complex allocation rules amongst customers, dynamically change the allocation rules by region or segment of customers and minimize total backlog days across all customers, or over specific customer segments. And, the application provides forward-looking visibility to quickly and easily view the impact of different allocation rules on customer order fulfillment.
About Profit Point:
Profit Point Inc. was founded in 1995 and is now a global leader in supply chain optimization. The company’s team of supply chain consultants includes industry leaders in the fields infrastructure planning, green operations, supply chain planning, distribution, scheduling, transportation, warehouse improvement and business optimization. Profit Point’s has combined software and service solutions that have been successfully applied across a breadth of industries and by a diverse set of companies, including The Coca-Cola Company, General Electric, Logitech, Rohm and Haas and Toyota.
LQM Petroleum Services is one of the largest international marine fuel oil brokers in the world, with core competencies in marine fuel oil brokerage, futures markets and outsourced bunker procurement solutions. With its deep expertise in marine refueling, LQM recognized that marine operators lacked a comprehensive refueling and inventory management system.
When it came time to build the system, BOptimumTM, LQM partnered with Profit Point to optimize the software algorithm in its bunker refueling recommendation software system. Read our case study to learn more about how LQM partnered with Profit Point to optimize its BOptimum bunker refueling recommendation software system.
Profit Point developed an optimization model to trade off transportation and warehousing costs while meeting product demand. The model included the top 100 distribution locations in the US along with Carlisle’s existing warehouse sites as potential locations for the model to consider.
Profit Point was able to identify achievable annual savings of $1 million by showing them how to use their existing network more efficiently and by adding one new warehouse location next to the new manufacturing plant being built. The model showed that Carlisle’s existing warehouses were located in desirable areas regarding operating cost and proximity to vendor, manufacturing and customer locations, but also identified business changes to the way Carlisle manages their inventory at several warehouses, allowing them to realize larger savings. The study also confirmed which new manufacturing plant location out of several candidates was the most cost efficient in regards to transportation costs.
“Profit Point did not come to Carlisle with a pre-determined answer to our logistics issues. They did an excellent job of listening to our needs, working with our personnel to extract the necessary information, and formulating recommendations to reduce our costs.” said Bob Stout, Vice President in charge of Purchasing and Logistics at Carlisle SynTec Inc.