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Using Production Modeling to Find Hidden Money in the Supply Chain

Video Transcription

Dan:
Hey, it’s Dan Gilmore. Supply Chain Digest, and the Supply Chain Television channel. Very excited to be here for part three of what’s been three part series now on our Thought Supply Chain, Thought Leaders Discussion on achieving found money in your supply chain. Just like reaching in that coat, and finding a piece of cash, we’re finding ways to do that in your supply chain that are fast, and easy, and quick. Very pleased to be here once again with Toby Brzoznowski. He’s Executive Vice President of Llamasoft, the leading Supply Chain Design, and Planning Software provider. Toby, thanks for being here again.

Toby:
Thanks for having me, Dan.

Dan:
This has been a great discussion. We’ve gone over product flow-path optimization. We’ve gone over something you called demand segmentation. Really showed some ways that companies can get that found money in a relatively short period of time. Very educational for all of us here today. Today we’re going to talk about production footprint capacity analysis. Before we get to that, real quickly, this concept of found money, how did that arrive within LLamasoft?

Toby:
Yeah, sure. Supply chain design traditionally has always been, “Let’s look at what are the things that we can change in our supply chain to get us the big win? What is the structural things that can happen?” What we found along the way is there’s a lot of small things that you can do that don’t entail major changes to the supply chain that are still going to drive major cost savings. That’s where this found money concept came up is every time people were doing these long-term projects they were finding quick wins along the way. Those quick wins started to fall into a few unique categories, and that’s really the focus of what we’re talking about.

Dan:
Yeah. I loved, just as an example, in the first one on product flow-path optimization you were working with a client that re-looked at their ports, and where they’re bringing product in, and by making some rather subtle changes they were able to save something like 20 million dollars a year. That’s the gain we’re talking about here.

Toby:
Yeah.

Dan:
I reached in that pocket, and finding a 20, or finding a 20 million, I like that idea. Today you want to talk about the production of footprint, and capacity analysis. Sounds intriguing. What’s that all about?

Toby:
Sure. Creating a model of your supply chain from end to end. Where your suppliers are, where you’re manufacturing, or producing products, how you’re distributing, getting out to customers. There is a full end-to-end piece to that. What a lot of people don’t look at in as much detail is what happens within the four walls of that production facility, or in that distribution center, the processes that go on there. What we’re really focusing on with production footprint, and capacity analysis is not the idea that, “I’m going to close down these three facilities, and I’m going to open up another one there.” That’s a topic for another time. We’re looking at just balancing how much you produce, or balancing how you flow products through different processes in your … inside of your four walls. By doing that properly based on how things have evolved in your supply chain you can find some major improvements.

Dan:
I’m sure you’ve seen this both on a domestic basis, say in the US, and on a global basis, because I think … I just a presentation a couple weeks ago about a company with 57 global production facilities, and really now just starting to look at those questions on a truly global basis. It was more regional before, and now they’re really bringing it together. I assume that’s what we’re talking about here. Just to clarify this for everybody, you’ve got I think a couple of examples. Why don’t you walk us through a couple of the projects you’ve been on?

Toby:
Sure. The first example is a consumer goods company, making a number of different, actually mostly food products, but also non-food products. What was interesting is again they had these multiple manufacturing centers all over the country. Primarily in this case a North American model, although it was a global company they were focusing on the North American production model. What had happened is just over time they have these facilities in place, and as they roll out new products the first question is, “Where do we make it?” A lot of times it’s, “Where do we have capacity?”, or, “Where are the suppliers?” You start to come up with an idea that worked very well in 1997, and maybe that same thing happened again in ’98, and in 2001.

Over time you … How often do you go back, and change where you’re making things that you’ve started making? In this example it’s a company that had been making these … This specific food item for many years in multiple facilities. What they wanted to look at is, “Do we have the right balance?” Demand has changed over time. Certain markets have evolved. Other markets have shrunk. Suppliers for those products have changed as they’ve just gone through rebids, and everything else for product. You start to look at this end-to-end supply chain with the existing capacity that you have. Modeling your individual processes, where are products made, and you really ask a pretty simple question. “How much of each product should be made at each facility to give me my lowest total cost?”

They weren’t adding in things like the ability to add capacity, and invest in more capabilities. It was just, “How much do I make with the existing capability?” There was a possibility that maybe products would stop being made at certain locations, and they would start being made in much higher volumes in others. Over the course of balancing this operation, annual cost savings just by shifting how much you make, and in each location, was over 55 million dollars a year.

Dan:
Whoa.

Toby:
It’s huge. It’s huge. We’ve seen that. It wasn’t a one-time case, because we’ve seen this with food, and beverage companies on five, or six occasions now over the last couple of years. Where once you see this, and you know that, “You know what? We found some big savings.” Of course we’re going to go to the next company that makes a similar product, and we’re going to say, “Why don’t you start here?” That’s where this idea of some of the quick wins really came into play.

Dan:
Yeah, without knowing the details of this example as you do, but I’m assuming part of that was really moving to a two-supply chain thinking. Why I say that is … Often that example you said people start paradigm you said. People decide to make something at a certain plant, and it just continues that way. The focus winds up being very much on unit cost. The plant in Saint Louis, Missouri can make it for 57 cents a unit or whatever. I assume your analysis looked at transportation, and inventory, and all those other things. Maybe it even goes up to 59 cents at some other plant, but the total supply chain costs were lower.

Toby:
That’s the perfect point, and I’m glad you made it. Because there were many situations where if you were managing your supply chain in your silos … I’m managing inventory … There were situations where inventory went up in certain locations. There were situations where you were using products that were higher cost to produce. There were situations where I was using higher cost transportation lanes, or modes, but the end result was when you look at the end-to-end supply chain, I got a lower total cost.

Dan:
Yeah. Very good. What’s the second example?

Toby:
A second example is looking at capacity. Capacity in this case inside the four walls of your distribution facilities. Taking the same approach of, “I’ve got an end-to-end supply chain, and there are costs all along the way,” there are fixed costs, and then there are variable costs. One of the elements along the way is, “What are my capacity constraints? What can I actually flow through here, and in what quantities?” If I were to really use that as a constraint, and not get into a situation where when I hit capacity I have to do things like expediting shipments from other locations, and I have to do things like … Maybe even make investment in third party storage, or other situations during peak times, or during seasonal situations. You model this, and you take those things into account. You come up with a plan that flows products through your network, and utilizes the available capacity at the lowest total cost.

This case, an apparel manufacturer, had multiple facilities where they were distributing products. They were doing things like breaking down the inbound units. They were doing some conversions. They were adding some unique characteristics to those clothing items. They were repackaging them, and then they were getting them out the door. What they found was there were many situations where just by modeling the process they could see in a simple dashboard of a green light, yellow light, red light, where these bottlenecks were occurring. They were then comparing those bottlenecks to what the costs were in that same period of time, because of other behaviors that they were forced to go into.

What we found first of all was when you find those bottlenecks … If we were to optimize the flow based on those seasonal patterns, based on how everything is going out to market, and we balance this capacity better, you’re going to eliminate a lot of those expedited shipments, you’re going to eliminate all of those extra costs. The end result was something that was a lot more smooth, and if they did have something that came up that was unexpected they were able to deal with it.

Dan:
Absolutely. I love both of those examples, and you’re really talking to something I believe firmly in here. I assuming that probably like the food company, or the consumer products company probably got a big one-time hit, benefit from looking at this. Then with all the new product introduction, with all the volatile demand, or whatever … It seems to me if I had a new product that I wanted to introduce I would so much want to be able to have this kind of total supply chain analysis, and make the recommendation about, “This really is the optimal way to produce this product, so much here, and so much there.” Rather than saying, “We’re going to produce it in Eau Claire, Wisconsin, because we got capacity.” It’s just the right thing to do.

Toby:
Yeah. I heard an executive at PNG, who’s since retired, that this was his passion. What he was really talking about was this is ingrained into their thinking. Every time a new product comes into the mix it’s like Vegas Night again. We can … I give a couple of people the opportunity to gain the whole system and say, “Is it now time to change everything again?”, and shift where products are made, shift how they’re produced, and figure out what is the lowest cost way to get this product folded into the overall portfolio that we have. A lot of times introducing one product … If I was just focusing on that product I’d put it one way, but if I’m focusing on my entire supply chain sometimes I’m going to come up with a different answer.

Dan:
Yeah. As we talked about in the previous broadcast, if you have a modeling group, and you’re doing a supply chain design project, you might look at this as sub-column. Is this another area, as with the previous two, that I could start just right here?

Toby:
Yeah, absolutely. The great part about all of these is you can start as a project. You just focus and say, “I want to focus on my production footprint. I want to focus on my capacity flow.” Over the course of a number of weeks, and months what you’re doing is you’re gathering usually historical data. Let’s look at the last 12 months’ worth of products that flowed through my network, and what were the costs associated with those flows. What were … Are my capacities at each of these facilities? What you come up with is a model of the as-is, and you use that as-is to determine, “What should I do?”

Dan:
Again we’re not talking about shutting down factories …

Toby:
No.

Dan:
… Or opening new ones. We just simply saying, “In the network I’ve got, the footprint I’ve got, the capacity I’ve got what’s the optimal way to produce each and every skew?

Toby:
Absolutely.

Dan:
We have product flow-path optimization, we have demand segmentation, we’ve got production footprint, and capacity analysis. Three ways to find some money pretty easily in your supply chain. Toby, it’s been a great conversation all through the broadcast. I really appreciate you joining me today.

Toby:
Thanks for having me.

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