Add Total Delivered Cost Variances to Manage Your Supply Chain
It is often said that you can only improve what you measure. To that end, there has been a lot of progress in performance tracking and activity-based costing over the past 10 years. With the advent of better activity-based costing, leading companies generate monthly manufacturing variance reports at a detailed and actionable level. However, this does not appear to be the case in the supply chains of many of those same companies. At the end of this post, I’ll recommend some specific supply chain metrics to guide your supply chain improvement.
We routinely find that many companies have a very limited understanding of their supply chain costs: what they are, where they come from or why they’re happening. In a typical engagement with a new client, one of the first things we do is develop a picture of their supply chain current state with respect to flows, cost and service. We work with the client to gather all of the available information, which is much too often a very formidable task, until we can assign the cost from each operation that touches a product or intermediate from the time it is a raw material until it is delivered as a final product to the customer.
When the project team first presents the results to management, we invariably hear, “We don’t do that,” or “Those costs must be wrong.” Unfortunately, we sometimes hear, “There is no way we’re losing that much money at that customer.”
Clearly, there are times when the team learns something new and we have to adjust the costs. However, in the majority of cases we walk through the elements of the costs with management and the realization sets in that the numbers are correct and the costs really are that high. Now that we have all seen the true picture of the supply chain we can align on the effort required to improve it.
Supply chain managers, like their manufacturing counterparts, should demand ongoing metrics at the operational level that are actionable if they want to drive improvement in their supply chains. Reports that provide only the total freight spend, total warehouse spend or total person-hours worked in the supply chain vs. the plan don’t contain enough actionable information to drive performance.
I propose the following metrics as a starting point for managing the total delivered cost to the customer base and welcome your feedback on any metrics that I might have missed or that might replace one I’ve suggested.
Total Delivered Cost Supply Chain Metrics, a Start:
- Actual vs. target for shipping containers
- Actual loaded vs. the maximum allowable capacity for the commodity and shipping container combination
- Actual vs planned cost to serve variance reports at the customer/product level of detail with specific variances called out for
- Cost of Goods Sold (COGS)
- Mode exception (shipped by a premium mode of transport vs. the planned mode)
- Sourcing exception (shipped from a different location than the planned source)
- Fill exception (the difference in cost if the shipping container were filled to the maximum allowable capacity)
- Volume variance (total volume shipped vs. the planned volume to allocate fixed costs)
- Mix variance (change in the mix of products shipped vs. the plan and its impact on cost)
- Price variance (change in the price charged by carriers and other logistics service providers vs. the planned price)
With this set of metrics a supply chain manager should be able to quickly understand the reason for any changes in the total delivered cost to each customer, and thus the gross margin. Now that we can measure it, we can manage it.
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?
Recent events during the summer of 2015 have exposed a major vulnerability in the supply chains of many U.S. manufacturers located in the industrial belt of the American Midwest. Iron ore as well as many other bulk commodities such as grain and coal, is shipped from Northern Minnesota and Michigan via vessels on Lake Superior through the Soo Locks at Sault Ste. Marie Michigan and then south to the lower Great Lakes region. And for 20 days this past August these vessels that normally transit the Soo choke point experienced long delays and backups because the 2 primary and largest locks were unusable or intermittently closed for maintenance.
The trouble started when the MacArthur lock had to be shutdown unexpectedly in early August because of a set of gates that did not close properly, thus diverting its normal traffic to the adjacent Poe lock. This closure eventually lasted almost 20 days. Then, according to the newspaper USA Today, the Poe had to be briefly shut as well. (There is a 3rd lock that is still available but it is functionally obsolete and rarely used these days.) With both locks out of commission or only sporadically open, 100 vessels were delayed at least 166 hours during the height of the summer shipping season: imagine the cost to shippers as well as the disruptions on the receiving end of those shipments.
The Soo locks are a critical link in the U.S. transportation network: according to the Detroit News, 3985 ships hauling 77.5 million tons of iron ore, coal, grain and other cargoes transited the locks in 2014. A large part of the production in the Great Lakes region of the Midwest is directly or secondarily tied to the manufacture of steel and other basic commodities which in turn rely on marine delivery of raw materials via the Great Lakes. The Soo Locks are so important that during World War II, troops were send to guard them against any sabotage.
Given the vulnerability of this critical asset, and the deteriorating state of the country’s infrastructure generally, you would think that Congress and the Army Corps of Engineers would be moving quickly to either build a new lock or modernize the existing ones. However no significant institutional movement or progress is underway right now. Just how critical the Soo is becomes clear when you realize that only the 47-year-old Poe is big enough to handle the 1000-foot vessels that today carry roughly 70% of the freight on the Upper Great Lakes. The impact of any prolonged outage of this asset would certainly have catastrophic consequences on many companies’ supply chains
By now, we’ve all probably heard about the fact that there is a worldwide glut of crude oil.
This is due to many factors of course, including the increased production of oil and natural gas in North America (especially as a result of fracking), as well as the rising proportion that renewable energy sources have come to represent in the overall energy marketplace. And members of the OPEC cartel have made no secret that they are increasing or at least maintaining relatively high production levels so as to drive competitors out of the market and thus maintain their market share. Therefore the supply of petroleum on world markets is high, thus driving down the price.
This oversupply of crude oil in relationship to demand has had a big impact on the supply chain for moving oil from supplier to customer. Over the past decade, there has been a huge increase in the oil supply chain infrastructure. Trading companies have built vast storage facilities in order to insulate themselves from the high prices they experienced in the past. But now with the current glut of petroleum most of this on-shore storage capacity is full, and this has led to an interesting phenomenon. Now, some trading companies are being forced to use their marine transportation assets, i.e. oil tankers and supertankers, as simply floating tank farms. As the spot price of oil has collapsed, it now makes economic sense to simply load the vessels without a definite destination or customer in mind and store the oil at sea.
Such a strategy, of using transportation assets as de facto storage locations is very typical of any commodity type market where the market power of the customer is much stronger relative to the producer. For example, this situation has long been typical in certain commodities that are delivered by rail, where customers simply leave product parked in cars out on a rail siding somewhere until it’s needed.
Of course, over time as normal market forces do their work, the relative bargaining positions of the buyer and seller can shift. In the case of oil, various economic and political forces can quickly move the markets such that leaving tons of oil floating out on the seas in very expensive storage tanks no longer makes economic sense. And when this happens, those vessels will soon be put back to the purpose for which they were truly built.
We all know the saying, “An apple a day keeps the doctor away.” However, for many of our neighbors, it’s easier said than done. According to some recent surveys, most of you reading this eat about 40% more fresh produce than the segment of the population that is served by our nation’s food banks. In Texas, according to the recently released Feeding America Map the Meal Gap data, 17.6% percent of the overall state population struggled to avoid hunger in 2013, including nearly two million children. Surprisingly, in many cases the problem is not the availability of food -, it is a supply chain problem.
Through a CSCMP friend at the Houston Food Bank, I recently started a project with Feeding Texas, a network of the 21 food banks serving the state, to increase the amount of fresh produce we can deliver per dollar spent. Just like in many private sector companies that have grown in size over time, each Feeding Texas member food bank operates independently. Across the food banks resources are tough to come by and tend to be used in the day-to-day operations to bring in food and get it out the door to clients. Thus, they have not yet adopted many of the current best practices in supply chain management.
Even though there is more fresh produce available than they can use at any given time, many of the key issues that Feeding Texas members face, like
- Lack of transportation capacity to move produce when it is offered
- The high cost of transportation that consumes limited budget funds and restricts the amount of produce that can be obtained
- Purchase of Out-of-State produce when produce is available in Texas
are typical of an organization that haven’t implemented modern network design, supply/demand planning and transportation planning processes.
We are currently collecting data to complete a more extensive review of the total Feeding Texas supply chain to identify opportunities to move more fresh produce at a lower cost. We are also engaging with key industry contacts and donors to help us understand whether we can adopt some of their best practices in the movement of fruits and vegetables. I have to say that I have been very gratified at the number of times I’ve called a supply chain colleague to ask for their help on this project. In almost all cases, the response has been an unhesitating, “What can I do to help?”
I’ll keep posting our updates as we hit new milestones in our project. In the meantime, I would ask you to reach out to the food bank in your neighborhood and ask if your supply chain expertise can be put to good use.
July 17th, 2014 5:04 pm Category: Global Supply Chain, Green Network, Network Design, Optimization Software, Supply Chain Agility, Supply Chain Improvement, Supply Chain Optimization, Sustainability, Transportation, by: Gene Ramsay
Many of our activities at Profit Point are focused on helping clients in identifying and implementing changes that improve the efficiency of existing supply chain networks, ranging from planning to operations and scheduling. In the short term we are usually trying to find ways to use existing capabilities more effectively, but as you look out over longer time horizons supply chains evolve to develop new links, and these must be considered as you plan.
One instance of this evolution was described by my colleague, John Hughes, who recently wrote about the rise of a “New Silk Road”– a rail network stretching through Western China, Kazakhstan, Russia and Belarus to Europe – used for transporting manufactured goods from Asia to meet demand in Europe.
But Asia has a complementary demand that must be met for their manufacturing systems to function, the demand for energy to power their factories and cities. The growing worldwide demand for energy, and for faster routes to market, is opening up another new link in the global trade routes – the Northern Sea Route, a maritime route connecting Pacific ports with Europe via the Arctic.
Lawson Brigham, professor of geography and Arctic policy at the University of Alaska Fairbanks, was recently quoted on the arcticgas.gov website as saying “What’s really driving the Northern Sea Route is global commodity prices and natural resource development, particularly in Russia.”
The northern reaches of the earth are currently hotbeds of energy development, and much of the activity is focused on adding Liquefied Natural Gas (LNG) production capacity. Projects are on-line or in progress stretching from the North Slope in Alaska to the Yamal Peninsula in Siberia to Hammerfest in Norway. The Northern Sea Route offers quicker shipments of many of these supplies to major Asian ports, shaving ten to twenty days off one-way transit times from Russia and Norway to ports in Korea and China, compared to routes through the Suez Canal.
Climate change has made these routes generally ice-free for several months of each year, and thus more cost effective, but ice-strengthened cargo ships, with icebreaker support, are still required to keep the route open in the colder months, thus driving up the costs.
Supply chain planning activities on a global scale will over time need to expand to consider the potential impact of these types of shipping options. Keep an eye out for this and other new links in the global chain as they become available – change is inevitable.
For a more information on this route see articles like these:
Additive manufacturing or 3D printing is a process of making three-dimensional solid objects from a digital model. It is achieved by laying down successive layers of material, as opposed to the traditional machining techniques of removing material by drilling and cutting. 3D printing is usually performed by a materials printer using digital technology.
Taking a digital image of a toy and printing out a near-perfect replica of it seems sci-fi and surreal, but rapid technological advances in 3D printing being developed make this and even more possible. Printing metal parts with increased strength makes machines even more viable and cost-effective in manufacturing. Additionally, an entire part can be 3D printed in a single machine, eliminating multiple touch points in traditional manufacturing and reducing failures. The newest futuristic trend in 3D printing is to go huge: using robotics to deposit building materials in an orchestrated and precise way to build large structures made up tons of interconnecting parts.
3D printing is a reality. A recent Forbes magazine article, “What Can 3D Printing Do? Here are 6 Creative Examples” lists several ways in which 3D printing have been used:
- In 2012, doctors from University of Michigan developed a tracheal splint made from a polymer and created directly from a CT scan of a baby’s trachea/bronchus using image-based computer model with laser-based 2D printing to product the splint.
- Both General Motors and Ford Motor Company have used 3D printing to make prototypes of vehicle parts used in testing and design.
- Nasa has used 3D printing recently to make a rocket engine injector and use it for major hot fire testing.
- Defense Distributed, a high tech gunsmith group, created the world’s first 3D printed gun called the “Liberator”.
- Prosthetics including a 3D printed bionic ear created by Princeton University scientists have been developed.
Although 3D printing has been around since the 1980’s, a differentiating trend has emerged this year that could make 2014 pivotal: 3D printing machines are now being used to manufacture a large variety of consumer products not just heavy machinery and structural components such as aircraft parts. The printers are expensive and the 3D pictures required to print are difficult for most – a mainstream breakthrough in 3D printing could be seen in the near future as printers become cheaper and easier to use.
What could the Supply Chain of tomorrow look like if and when 3D printing takes off? It has the potential to transform certain parts of manufacturing and supply chains over the long term. Traditional supply chains are often characterized by mass production of products driven by forecasts and pushed to customers through a warehouse distribution network, with long lead times, high transportation costs and large carbon footprints. A 3D supply chain would be distinguished by having customized production, be “pulled” by customer demand, locally printed and distributed, have short lead times, low transportation costs as well as low carbon footprint. It will create a demand for smaller factories that would take offshore manufacturing and bring it close to the consumer. Goods will be cheaper to reproduce domestically versus manufactured offshore and shipped from low-wage countries. Because new technologies currently being developed result in a significant proportion of manufacturing becoming automated large and costly work forces would be reduced. In addition to distribution cost reduction, storage would also be a reduced as products could be made quickly in response to demand as opposed to meeting service levels via inventory and safety stocks.
Although it is a huge leap to go from printing a single object on a 3D printer to replacing an entire manufacturing enterprise and thus allowing any business or individual to become its own homegrown factory, Gartner Group calls it the “beginning of the Digital Industrial Revolution which threatens to reshape how we create physical goods”. If that “threat” becomes reality, then it promises to reshape how we consider and optimize our current Supply Chain.
The global economy hangs in a tenuous balance. U.S. growth has been slow, but steady, while the global economy has been mixed. The survey data suggests that logistics planners are most concerned with meeting service levels, driven by capacity concerns, rising costs and the need to increase productivity.
- A slow and uncertain economic recovery has begun to put pressure on transportation/distribution planners to plan for multiple scenarios.
- Rising fuel and driver costs remain a key long-term concern.
- Capacity is a significant concern. While trucking capacity has tightened, rail capacity is available.
- Planners are equally concerned with meeting service levels, perhaps, caused by rising costs and capacity constraints.
To read the complete report, including our conclusions, click the link below:
Isn’t that one of our main objectives in life, whether the setting is business, participation in sports, your personal life?
I see part of our role at Profit Point as helping our clients to achieve their potentials. We do this by applying mathematical techniques to find good solutions to the problems that business leaders face. Many of our clients call upon us when their business is going through a time of transition, particularly when there is a merger of organizations.
Analyzing the potential for facility rationalization is one of the standard uses of our Profit Network infrastructure planning software. We, and clients, have used this software to decide how many plants, production lines and warehouses they need to best serve their customers in many different types of situations.
But mergers present opportunities to organizations further down the supply chain as well, of course. Many companies use vehicles to deliver product to customers on a regular basis, and when there is a merger (and at other times) well-run businesses are looking for ways to ensure that these types of activities are carried out efficiently.
Our Profit Vehicle Planner (PVP) software can help in planning for a merger at that next level down – for instance, when you have two organizations serving customers in a metro area, how do you combine them together?
The diagrams below give you an idea of the situation a company might face. They have operations in various parts of the country, serving hundreds of customers in each area. Their Southern California customers might be spread as in the pattern in the diagram below on the left.
To serve these customers they currently have five route territories, covering the customer deliveries, as is shown in the diagram on the right.
Now they plan to merge with a smaller competitor in the same type of business. The acquired company has customers in southern California with a similar spread across the geography, divided into two territories, as is shown in the diagrams below.
PVP will allow the analyst to look at all of the customers together,
and in this case, when the territory planning algorithm runs, it finds that deliveries can be made in six more-compact route territories, covering all customers. Separately the two companies had seven territories – and merged they have the potential to serve them with six – thus saving a truck and various associated expenses. The merged solution is shown below.
Implementing this merged solution can help the company better achieve its potential – for profits.
Upgraded Vehicle Route Planner Software Improves Decisions in Distribution Planning, Fleet Sizing, Driver Productivity and Transportation Cost Reduction
Profit Point announces the introduction of Profit Vehicle Planner™ 3.1, a major upgrade to our distribution analysis and design software. Profit Vehicle Planner is designed for Strategic Logistic and Transportation Managers that have large fleets with multiple daily delivery stops and changing logistics processes. The software update includes a combination of new features and technical enhancements which combine to support richer scenario modeling for larger large fleets with multiple daily delivery stops and changing logistics processes.
Designed to be highly accessible and customizable, Profit Vehicle Planner (PVP™) uses standard Microsoft business tools for calculation and display of information, including Excel, Access and MapPoint. The software automatically creates and designs the optimal sales/distribution territories. It does this by dividing customers into territories and days of service, with each territory representing the volume delivered by one delivery vehicle and one driver over the course of the planning horizon. The objective of the proprietary heuristic algorithm used in Profit Vehicle Planner is to assign customers to territories that will minimize the number of trucks required to serve the customer volumes while delivering within the various common and business-specific constraints, including customer frequency of service, hours available per day, volume available per truck, unique equipment requirements and virtually any other custom constraint required.
“With 12 years in the field, Profit Vehicle Planner has been put to the test against some of the world’s largest supply chain distribution problems,” noted Jim Piermarini, Profit Point’s Chief Technology Officer. “Transportation best practices have expanded over time, so decision makers are looking for more comprehensive strategic logistics and transportation modeling solutions.”
With the new release, PVP’s expanded features include extensive customization of the software to tailor the territory planning solution to be cost and time effective to meet your unique and specific distribution requirements and the ability to use imported address data to automatically geocode customers for whom lat/long data is missing.
For companies that perceive distribution as mission critical, users have the option to integrate PVP deeply into their supply chain systems to import and export data in to their ERP system. Companies that seek the most cost-effective solution have the ability to import virtually any relevant data from an Excel template that includes the following:
- Customer data such as address, location, frequency of service, volume per stop, time required per stop, other data as needed
- Truck data such as size, days of the week that it is available, order in which it is to be scheduled, hours available each day, special equipment, other data as needed
- Warehouse and district data such as location and characteristics of associated trucks and drivers
- Time related data such as start date of planning horizon and number of weeks in the planning horizon.
- Product specific data such as unit of measure of the product being delivered
- Any other data required to accurately model unique constraints
Once optimized, users have the ability to review and assess the characteristics of the territories that are created using tables and maps to provide an enhanced visual experience. And to ensure the optimal distribution plan, users can manually move customers from one territory to another or from one service day pattern to another (e.g. from Monday-Thursday to Tuesday-Friday), if desired.
June 22nd, 2012 3:46 pm Category: Distribution, Enterprise Resource Planning, Global Supply Chain, Green Network, Green Optimization, Network Design, Optimization, Supply Chain Agility, Supply Chain Improvement, Supply Chain Planning, Transportation, Vehicle Routing, by: Editor
Supply Chain optimization is a topic of increasing interest today, whether the main intention is to maximize the efficiency of one’s global supply chain system or to pro-actively make it greener. There are many changes that can be made to improve the performance of a supply chain, ranging from where materials are purchased, the types of materials purchased, how those materials get to you, how your products are distributed, and many more. An additional question on the mind of some decision makers is: Can I minimize my environmental footprint and improve my profits at the same time?
Many changes you make to your supply chain could either intentionally – or unintentionally – make it greener, so effectively reducing the carbon footprint of the product or material at the point that it arrives at your receiving bay. Under the right circumstances, if the reduced carbon footprint results from a conscious decision you make and involves a change from ‘the way things were’, then there might be an opportunity to capture some financial value from that decision in the form of Greenhouse Gas (GHG) emission credits, even when these emission reductions occur at a facility other than yours (Scope 3 emissions under the Greenhouse Gas Protocol).
As an example, let’s consider the possible implications of changes in the transportation component of the footprint and decisions that might allow for the creation of additional value in the form of GHG emission credits. In simple terms, credits might be earned if overall fuel usage is reduced by making changes to the trucks or their operation, such as the type of lubricant, wheel width, idling elimination (where it is not mandated), minimizing empty trips, switching from trucks to rail or water transport, using only trucks with pre-defined retrofit packages, using only hybrid trucks for local transportation and insisting on ocean going vessels having certain fuel economy improvement strategies installed. These are just some of the ways fuel can be saved. If, as a result of your decisions or choices made, the total amount of fuel and emissions is reduced, then valuable emission credits could be earned. It is worth noting that capturing those credits is dependent on following mandated requirements and gaining approval for the project.)
If your corporate environmental strategy requires that you retain ownership of these reductions, then you keep the credits created and the value of those credits should be placed on the balance sheet as a Capital Asset. Alternatively, if you are able, the credits can be sold on the open market and the cash realized and placed on the balance sheet. Either way, shareholders will not only get the ‘feel good’ benefit of the environmental improvement, but also the financial benefit from improvement to the balance sheet. If preferred, the credits can be sold to directly offset the purchase price of the material involved, effectively reducing that price and so increasing the margin on the sales price of the end-product and again improving the bottom line. If capital investment is required as part of the supply chain optimization, the credit value can also be a way to shorten the payback period and improve the ROI, or to allow an optimization to occur
So, when you consider improving your environmental impact or optimizing your supply chain, consider the possibility that there might be additional value to unlock if you include both environmental and traditional business variables in your supply chain improvement efforts.
Written by: Peter Chant, President, The FReMCo Corporation Inc.
Applying Lean Logistics Principles in Combination with Tactical Software to Improve Distribution Transportation Planning
May 23rd, 2012 3:56 pm Category: Distribution, Green Network, Profit Vehicle Planner, Profit Vehicle Router, Supply Chain Agility, Supply Chain Improvement, Supply Chain Planning, Supply Chain Software, Transportation, Vehicle Routing, by: Richard Guy
As the competitive environment changes the way companies do business, transportation managers are embracing lean principles mixed with tactical planning software to support cost reductions and quality improvements. Applying lean initiatives to supply chain and logistics operations is one method that allows businesses to reduce cost, but the marriage of tactical planning software with lean principles introduces a new approach and additional opportunity to eliminate waste.
Lean is a team-based form of continuous improvement that focuses on identifying and eliminating waste and increase of speed and flow of an operation, such as distribution of products. Waste can be defined as activities that do not add value for the customer.
A short waste target list for a distribution transportation planner may include the following:
- Underutilizing employees or behavioral waste
For example, managing a large delivery fleet with a relatively fixed, repeating delivery pattern will benefit from an optimal territory planning and routing solution. Since lean adds emphasis on waste, non-value added work, queue times, to traditional process analysis, improving the distribution and routing plan for a company’s fleet can eliminate waste in all of the above categories.
Selecting strategic territory planning software that will optimally divide a customer region into geographical “territories” based on customer delivery requirements can be an important first step in the lean process. Think of each territory is a contiguous area containing the customers that will form a single route, or a regular pattern of routes, over a day, week, month or other time period. Lean solutions can include optimal delivery territories shaped to minimize total travel and to equalize the delivery workload for drivers.
Most software packages utilize geographical mapping software such as MapPoint or Google Maps to generate a solution that will minimizes total travel miles while meeting customer service and delivery requirements. Some of these tools can also be personalized and customized to meet specific business requirements. Planning tools that create both territories and routes in a single integrated package appear to be the most popular.
Before implementing the territory planning software solution, let’s compare the results to the target list of waste. Transportation waste is minimized. Drivers (“employees”) become more productive since they now have a delivery territory designed to adhere to the driver profile, which may specify shift time and driving break intervals. Routes are optimized, so there is no more wasted motion time. Routes can be built to ensure sufficient inventory is available at all stops. Natural boundaries such as rivers, mountains, canyons and man-made boundaries such as rail tracks, major highways, canals can be model to create optimal delivery territories that are bounded by these constraints, thereby eliminating driver waiting to go around these obstacles.
In summary, managers that use transportation routing and territory planning software are following the lean principles to identify and reduce waste. Implementing the solution can potentially reduce transportation costs by 5% to 20% by decreasing miles traveled and increasing on-time delivery while dramatically increasing driver productivity. Lean principles when married to tactical planning software can be competitive weapons and a great advantage in tough economic times. Start considering lean logistics principles in conjunction with territory planning software applied to distribution transportation problems as opportunities to reduce waste.
Profit Point, the leading supply chain optimization software and services company, today announced a partnership with TBB Global Logistics, a leading domestic and international transportation management provider. The two companies have partnered to provide an integrated solution of logistics and supply chain optimization software and services to provide global manufacturers and distributors an integrated supply chain network and distribution plan.
As a logistics industry leader since 1946, TBB Global Logistics has the knowledge and expertise to develop and manage the most complex supply chain strategies for your company. Together Profit Point and TBBGL can deliver a complete solution to provide increased efficiency, lower total costs, superior customer service and a more competitive position in a dynamic global marketplace. TBB Global Logistics is a non-asset based, supply chain management company that relies on superior, web-based technology and relevant expertise to enable clients’ ability to effectively and profitably compete in a global marketplace.
“Large domestic and international clients are pursuing deeper integration of their supply chain strategies into their day–to-day operations,” noted Dr. Alan Kosansky, Profit Point’s CEO. “Partnering with a company like TBB, provides our clients the ability to develop a seamless transportation and distribution strategy and implementation plan.
Profit Point now has access to global transportation data resources and 3PL expertise insight to deliver the entire package: the strategic supply chain plan along with an operational solution covering supply chain distribution, logistics and transportation engagements. Together, the two companies deliver a unified team of dedicated professionals to meet the demands of global manufacturers and distributors by helping customers design and implement an optimal supply chain.
To learn more about Profit Point’s supply chain 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.
About TBB Global Logistics:
Founded in Baltimore in 1946, TBB Global Logistics provides complete supply chain management services. TBB provides domestic and international transportation management and supply chain solutions through its Supply Chain GuardianSM brand. Supply chain support services include sourcing, procurement, customized warehouse logistics, inventory management and reverse logistics. TBB offers web-based supply chain management applications and supply chain consulting. Headquartered in New Freedom, Pennsylvania, TBB Global Logistics also has offices in Maryland, located in Hanover by BWI Airport and sales teams throughout the United States. TBB Global maintains a network of agents in countries around the world. TBB is a third generation, family-owned company.
The following is a guest blog post from Sam Polakoff, President, TBB Global Logistics.
Now sit down and think about it for a moment. Exactly when did your company establish its current distribution network? In all likelihood, the answer is three or more years. Is your business the same as it was three years ago? Probably not. What factors commonly drive change necessitating a shift in supply chain strategy? There are many including, but not limited to, the addition of key customers, product introductions, changing sources of supply, competitive threats, mergers, acquisitions, natural disasters and shifting demographics. So how do you rationalize using yesterday’s supply chain for today’s business needs? At best, you are getting by with higher costs and lower margins. You may feel as if you are losing the battle to stay competitive in a difficult economy.
To compete effectively in a dynamic business environment, continuous evaluation of the marketplace is a critical success factor. Once knowledge is in-hand, your supply chain must be built in an agile manner allowing for efficient shifts to accommodate expected and unexpected change.
I recently spoke to the owner of a U.S. manufacturing company that dates back to the early 20th century. He was explaining how he was in the final stages of divesting the company of all its hard assets. They had long ago moved manufacturing offshore. They had evolved into a substantial importer managing a series of company-owned distribution centers. Today, all of the distribution is outsourced and the old company headquarters building is up for sale. The shift to a virtual company is near complete. The executives are now free to work on product innovation and the related sales and marketing. They still compete effectively but with higher margins and more agility. This old line company has adapted and overcome, multiple times, aligning and realigning supply chain process with strategic business objectives and changing marketplace conditions. The results are higher profits, supply chain flexibility and happier customers.
Establishing and using key performance indicators will serve as confirmation of effective supply chain process or as a red flag requiring attention. Aligning supply chain with strategic business objectives and keeping your finger on the pulse of the customer will propel you forward on the road to prosperity.
When you slice up the supply-chain into its different components, one of the highest areas of expense, and an area that many companies struggle to comprehend and manage, is transportation. Why is it, that for many otherwise sophisticated companies, no one within the organization is held accountable to know what they spend on freight, where they spend it, why they spend it and how they can change it?
A recent transportation survey conducted by Profit Point shows 75% of our survey respondents continue to struggle with the trade-off between adding carriers to reduce costs, and limiting the total number of carriers so they can be effectively managed for safety and service. Probably the most surprising finding for me was that one out of every four respondents was unable to confirm whether or not their most recent improvement projects in the transportation arena had any impact. Wow! One quarter of transportation managers can’t measure whether their efforts made a difference. In this uncertain economic environment where every penny counts, I think we should expect more from ourselves.
Another find – only 30% of respondents had been out in the market with a bid over the previous 12 months. At a time where shipping volume is picking up and carriers are becoming more aggressive with pricing, it seems we should be very close to the market to make sure we’re paying the right amount for our freight. With less than a third of shippers out in the market with a bid over the last year, how can we be sure that the price increases being proposed by carriers are reasonable?
Transportation continues to be a significant portion of the total supply chain cost, therefore for many companies, the single most significant area to focus cost reduction attention. Have we lost our vision? Is it time for a new pair of glasses? Our survey seems to suggest it. If you have been anointed as the Czar of transportation for your company, then you need to be in touch with the market and confident that the changes you implement are having a meaningful impact on the bottom line.
You can download the report by clicking the link below:
With the timing and velocity of an economic recovery uncertain, many companies are looking for new ways to improve profits without risking growth capacity. One key opportunity for gaining competitive cost advantage is transportation spend.
So this year, we conducted a survey transportation decision makers to learn more about their concerns and expectation for 2011. Supply chain professionals from a variety of companies and industries were polled. Here’s what we learned:
- In today’s environment, cost and service still dominate all other considerations
- Despite current economic conditions, 87% of respondents are concerned about rising transportation costs
- 75% of all respondents find it challenging to balance the tradeoff between cutting costs and adding too many carriers
- One in four respondents were not able to measure the impact of their “improvement initiatives”
To read the complete report, including our conclusions, click the link below:
I’m a picture guy. In our kind of work, we have to be able to take a lot of data and make sense out of the process or processes that generated it. I used to work with a fellow named, Bill, who has a PhD in Operations Research, and is probably one of the smartest people I’ve ever met in my life. Bill is a guy who can look at six or seven big tables of numbers and then say something like, “… and the answer is 7.563.” He was usually right. I don’t have that talent to create the linkages among lots of different types of information in my head to come up with a conclusion like that. That’s why I like pictures.
Recently, one of my colleagues and I were visiting a manufacturing plant to assess their production scheduling process. The client invited us to visit the plant because they knew they had a problem. As we followed the scheduler through his day, we began to understand the root causes of the problem. So how did I choose to communicate what we’d found to the client? You guessed it; I drew a picture.
When the plant manager first opened the file containing the flowchart of their existing process, she told me she only needed to see that it took me three letter-sized pages to document to the process to know that the process was much too complex and cumbersome to be fixed with a couple of “quick hits.” Why is it that she knew without studying the details that we needed a full redesign to fix this process?
I think many of us are just built that way. I know there is a lot of clinical and academic research that shows how we human beings use our sense of sight as a first preference for observing the world, and that there are specific parts of our brains that are able to detect visual patterns or the lack thereof. However, I don’t think we need to see the results of that research to know why the phrase, “a picture is worth a thousand words,” is such an enduring statement. It rings true with all of us.
That’s why I like a software product called Tableau. It is marketed as a visual analysis tool and I think it does its job quite well. Although I don’t claim to be an expert user, I have found it quite useful when I need to understand what’s going on in a large dataset. Let me illustrate using an example from a recent transportation analysis that we did for one of our clients.
Our client had grown by acquisition and managed its transportation in a very de-centralized manner. Each of the sites contracted individually with their own set of carriers, using their own set of criteria for selecting and then awarding business to the carriers. Profit Point was called in to help the client understand the cost-savings opportunities that would result from a more centralized approach to carrier contracting and management.
Our first priority was to find out what was going on at all of the different sites so we developed a database from the client’s freight payment records to do it. Now, picture this (pun intended). We now have over 63,000 individual shipment records to analyze and we needed to do it in a way that told a story that we could understand and that we could then communicate to the client. The first thing we did was look at the spend by plant and by carrier. The spend by plant was more of a prioritization issue, to understand which of the plants had the highest freight spend, but the spend by carrier became the first part of our story as you can see in the two pictures below.
This second chart was a very powerful image to help the client quickly see that the number of carriers being employed was out of control. You don’t even need to be able to read the name of the carrier on the Y-axis to know that there are too many carriers in this picture. Many of these carriers had only a single load all year long, but were still carried in the system.
We also wanted to show the client the significant different in pricing policies across their carrier base. The following slides show how we used some more of Tableau’s functionality to make our point.
By plotting cost vs. distance for all of the shipments, we were able to see the general correlation of cost with distance that we expected, but we also saw a number of outliers that we wanted to better understand.
We then highlighted a group of very high-cost shipments and kept only those points to see what we might find out.
Using a simple stacked bar chart, it was very apparent that carrier “C-g,” the red bar in the chart at left, was the main player in this group. Once “C-g” was identified, we were able to demonstrate that their cost was always greater than the average cost for shipments with distances greater than 200 miles and by as much as 50-66% for shipments with distances greater than 1000 miles.
Again, these pictures allowed us to find one of the smoking guns inside this mass of data. Suffice it to say that we found many other opportunities through similar visual analysis.
Because of these pictures, and others like them, it was an easy sell. Using a tool that makes it easy to use the built-in “intelligence of our eyeballs,” we were able to develop a convincing call to action for our client, who went out to the market with a targeted freight bid and reduced their transportation spend dramatically.
As technology continues to penetrate more and more aspects of business and our everyday lives, it makes more and more data available for us to turn into useful information. But it’s only useful information when we can put it into a form that we understand and can communicate it to others. That’s why I’m a picture guy.
“Going Green” is becoming a higher priority for companies large and small, as regulatory bodies and consumers around the world push for more readily-available information on corporate carbon footprints and companies’ plans to control / reduce their carbon emissions. But how do you do this most cost-effectively? Optimization is a tool that can lead to better “green” decision-making.
First, let’s review of the types of decisions that companies are making today. Here are some real world examples from recent press reports…
Dole Food Company, the world’s largest producer of fruits and vegetables, has committed to make its banana and pineapple business in Costa Rica carbon neutral over the next decade. Dole social responsibility officials Sylvain Cuperlier and Rudy Amador recently highlighted their priorities in achieving this in an interview :
- measurement of current carbon footprint and activities, such as the use of fertilizers,
- research into and collaboration on mitigation and sequestration projects, and
- improved operations, including increased use of rail transportation on land and more energy-efficient refrigerated containers for maritime shipments.
Tyco Waterworks, a worldwide supplier of water system equipment based in the UK, has documented its consolidation of multiple manufacturing plants into a single Manufacturing Centre of Excellence for meter boxes, plastic injection molding and gunmetal products in Bridgend, South Wales. Having all its manufacturing under one roof results in a reduction in the company’s overall energy consumption and transport, with a resulting positive impact on its carbon footprint (as well as giving operational efficiency benefits.)
Xerox Corporation, which provides document services and equipment around the world, maintains a fleet of 5,000 vehicles used by its technicians in the United States as they respond to customer requests for service. Tony Rossi, Xerox’s manager of programs and operational support, said in an interview that his programs, which have reduced fuel consumption over the last several years by 10%, and have a goal of a 25% reduction, can be grouped into four categories:
- pairing each driver with the best-sized vehicle for his / her needs,
- improving the fleet’s fuel efficiency as vehicles are replaced,
- tracking driver routes and distances traveled on a daily basis, and
- using GPS systems to match available technicians against pending requests as they are dispatched during the day.
The common thread? These companies have made progress towards their cost and carbon goals by
- understanding their current situation, and what their options include,
- implementing more efficient operations over their existing supply chain (thus generally using less energy and lowering their footprint), and
- making the most effective capital additions to their supply chain systems when justified.
Optimization techniques can allow you to identify the best solutions that are possible in improving efficiency and implementing capital projects. Thus you can make the best choices for meeting your goals from the options that you have at hand.
In making decisions for a manufacturing-oriented supply chain like the one described for Tyco Waterworks above, a network design tool like Profit Network can help you evaluate the benefits of:
- keeping or consolidating existing facilities, as well as,
- opening potential manufacturing sites, taking into account
- capital costs,
- shutdown charges,
- manufacturing rates and costs,
- freight costs, and
- and a host of other costs and constraints on operations.
Profit Network uses a combination of linear and mixed integer programming and related optimization techniques to guarantee that you evaluate a range of solutions and identify those that are best for your particular needs. Potential decisions that can be evaluated include both operational changes and choices among proposed capital projects that will lead to greater efficiency.
Xerox and Dole have scheduling problems that can be solved by both optimization and heuristic means. The Xerox technician dispatching problem is a variation on the mathematically well-studied Assignment Problem, which can be solved using “greedy” algorithms (which pick off the “low hanging fruit” but are not guaranteed to give the absolute best solution) or more comprehensive methods that can give the best solution, at perhaps a longer solve time. Transportation scheduling problems again can be solved through these methods. Using the technology of the 21st century will be critical for businesses to meet their “green” objectives. Optimization technology is one of these new technologies that will help you reach these goals.
This article was written by Dr. Gene Ramsay, Profit Point’s Infrastructure Planning Practice Leader. To learn more about Profit Point’s Supply Chain Sustainability services, please call (866) 347-1130 or contact us here.
Image courtesy of Gavin Schaefer.
Many carriers went out of business in 2008 and 2009. The stronger ones survived and have typically sustained their business by establishing high levels of asset utilization. This has been achieved by limiting empty miles and finding complementary loads to ensure trucks are being used in both directions. This creates a wonderful opportunity for shippers: By identifying those carriers who can offer you the lowest rates because your loads help them balance out their network, you can find significant cost saving opportunities when purchasing transportation.
Learn about the essential steps that you can take today to cut costs and gain advantage in your carrier negotiations. Click the link below to access our new white paper:
solutions that are designed specifically for the transportation industry
can reduce transportation costs by up to 20%. “
Profit Point’s supply chain consultants have seen decades of economic boom and bust. Learn about the essential steps that you can take today to cut costs in the near term and prepare for future economic scenarios. Click the link below to access our new white paper: