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Using supply chain optimization tools to manage through a downturn
Daryl Pereira 270002AW8D firstname.lastname@example.org | | Tags:  supplychain impact09
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Ronan O'Donovan, Product Manager, Supply Chain Applications, ILOG, an IBM Company, starts this presentation at IBM Impact by detailing some common supply chain issues:
Ronan then runs through a number of common problems faced when trying to optimize the supply chain.
Network sourcing optimization
As you can see above, by adding an extra plant you may realize storage and warehouse cost savings.
You should also bear in mind that you can add value and increase working capital by optimizing where you hold inventory.
Service level optimization
Ronan uses the case study of a US-based beauty product retailer with a network of 3,000 stores served out of a central distribution center (DC) that introduces two regional DC's. The objective is to provide better service to the stores, reduce peak congestion at central DC and minimize incremental costs.
The following diagram illustrates the trade-off that needs to be considered:
Decentralizing the storage increases inventory costs at DCs but decreases store inventory costs and transportation costs. Looking at individual product demand variability can help isolate which products should be held centrally, and which regionally:
As you can see, it makes sense to hold inventory at the CDC when there is higher variation in demand.
Optimizing carbon usage
IBM ILOG has taken this into account with its LogicNet Plus tool. The user enters the factors used to calculate C02 emissions associated with various supply chain activities. LogicNet Plus optimizes the supply chain for lowest cost or highest profit and reports total carbon footprint to be used as an additional factor in decision making.
Under the Cap & Trade policy which is currently tabled, if organizations use less carbon than the level set by government, they have the opportunity to sell the difference to organizations that use more than their alloted level. This potential cost/revenue needs to be worked into the overall supply chain strategy. LogicNet Plus will optimize the network for maximum total profit, including the carbon credits bought or sold.
More information on ILOG Supply Chain Applications.