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Ph: +91 98406 18472/ +91 44 4501 8472                    Bala. Padmakumar                              Email : optimize@op...
1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transport...
Uncertain Demand                    Angry Investors                                Unnecessary trips  Regulatory Changes  ...
People                                                  Policy                                                            ...
Stock Price  NPV                                                                          Expenses              =         ...
1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transport...
Capital        Allocate                                                                                    People         ...
(Courtesy - IBM)© 2010-12 OptiRisk India (P) Ltd, All rights reserved            8
SC Network optimization                                                   Production planning   Locate facilities         ...
1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transport...
Supply Chain                                Inventory                     TransportationAPPLICATION                       ...
Increasing customer                Competitive                            Product proliferation        service requirement...
1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transport...
Warehouse                                                                                     Production Facility         ...
Most of the inefficiencies in operation comes from uncertainitiesSources of uncertainty in                                ...
Supplier Bankruptcy                 Exchange Rates Productivity                                                           ...
Efficient Frontier (Optimal Solutions)Logistics Cost                                          Current (Sub-Optimal)       ...
• Ordered and                • Delivery time in                                               • Delivered orderlines      ...
1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transport...
90                    85                    80Days in Inventory                    75                                     ...
10   15                      1022                            24                                  Cost of capital     21   ...
India                          14 %                            14% Japan                 11%Europe                10 %  US...
Items                FY11-12                 -1 Day                Peer Avg   Best Competitor   UnitsDays in Inventory    ...
21.76%    53                               5.22% 670                                      4.17                19.25%    61...
10% RoCE   15% RoCE   20% RoCE        8.0                                                                                 ...
Variability of Demand                               Low                          Medium                           High    ...
1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transport...
Key QuestionsHow many trucks to use from the set of fleet andfrom which carrier?Which shipment option to use for each orde...
Should the company buy (or) lease (or) rent trucks?What-if the truck capacities are increased/decreased?What would be the ...
Software and What It Does for YOUUSE OPTIRISK / IBM SOFTWARE to get Optimized Vehicle Routes     Software used custom OR m...
On-Time Delivery                                                           Increased VisibilityReduced Stock-outs         ...
Shareholder Value                                                  ROI                 Profit                             ...
Web based application; access from anywhere.Seamless integration with ERP systems.Planning generated in minutes.Custom vie...
OptiRisk Route Planner & Scheduler Studio (ORPSS)           © 2010-12 OptiRisk India (P) Ltd, All rights reserved   34
The client is one of the multinational fuel distributioncompanies having wide presence in India.                     The a...
Average saving of 23% per day                   70000                   60000                   50000                     ...
1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transport...
Data driven ApproachRobust solution for uncertain environment                                                  Observe  • ...
Other RDBMS                   Database DB2                                                                                ...
Agile Logistics                                                      Integrated                                           ...
• Lower resource                                                                                                    consum...
__________________________________________________________________________________________________________________________...
© 2010-12 OptiRisk India (P) Ltd, All rights reserved   43
Bala. Padmakumar                                     Ph: +91 98406 18472 / +91 44 4501 8472                               ...
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Logistics optimization

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Logistics optimization

  1. 1. Ph: +91 98406 18472/ +91 44 4501 8472 Bala. Padmakumar Email : optimize@optiriskindia.com Director & CEO Web: http://www.optiriskindia.com OptiRisk India(A certified IBM partner) © 2010-12 OptiRisk India (P) Ltd, All rights reserved
  2. 2. 1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transportation Scheduling7. Solution Approach © 2010-12 OptiRisk India (P) Ltd, All rights reserved 2
  3. 3. Uncertain Demand Angry Investors Unnecessary trips Regulatory Changes Too far from Suppliers Uncertain NPV Lower ROI Shrinking Margins Competitive Pressure Supply-Demand Gap LTL Fleets Too far from Customers Stock Outage Higher Investment Delayed Deliveries Higher Cost of Capital Unhappy Customers Escalating CostSubpar Revenue Growth Discounted Stock Price Bloated InventoryProduction-line stoppage Stressed Employees Quality Issues Product Obsolesce © 2010-12 OptiRisk India (P) Ltd, All rights reserved 3
  4. 4. People Policy Culture PlanProcess Quality Integration Communication © 2010-12 OptiRisk India (P) Ltd, All rights reserved 4
  5. 5. Stock Price NPV Expenses = Revenues ROA Total Assets © 2010-12 OptiRisk India (P) Ltd, All rights reserved 5
  6. 6. 1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transportation Scheduling7. Solution Approach © 2010-12 OptiRisk India (P) Ltd, All rights reserved 6
  7. 7. Capital Allocate People Acquire, schedule, To help make better decisions assign, Train Equipment Acquire, schedule, To reach Goals Locate Facilities Locate, schedule Vehicles Acquire, route, scheduleWhile observing Requirements / limits Raw Material Acquire, assignDetermined by Analyzing DataUsing powerful, robust, scalable and diversified optimization software and services © 2010-12 OptiRisk India (P) Ltd, All rights reserved 7
  8. 8. (Courtesy - IBM)© 2010-12 OptiRisk India (P) Ltd, All rights reserved 8
  9. 9. SC Network optimization Production planning Locate facilities Optimal production schedule Match Supply & Demand Meet plant floor constraints. Managing seasonality, and Benefits : Reduce carbon footprint. Improved throughputBenefits: Reduced costs, 5-15% reduction in SC costs Reduced inventory Better service level Leaner plants Revenue / Yield Management Sourcing Selection Choose best price Select Suppliers Indentify Optimal Commission Determine Order Quantities Benefits :Benefits : Higher sales volume Enhanced S&OP capability, Better Margins 2-5% reduction in mfg costs Transportation Scheduling Operational Inventory Management Fleet Selection Order quantity Route Plan / Schedule Order timeBenefits : Supplier identification 10-30% reduction in Transport Benefits : cost Increased on-time deliveries 10-30% reduction in inventory Improved service level © 2010-12 OptiRisk India (P) Ltd, All rights reserved 9
  10. 10. 1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transportation Scheduling7. Solution Approach © 2010-12 OptiRisk India (P) Ltd, All rights reserved 10
  11. 11. Supply Chain Inventory TransportationAPPLICATION Network Management Scheduling Design • Minimize investment(in facilities) • Sourcing Selection • Route OptimizationBENIFITS • Match Supply and Demand • Optimize order Levels • Fleet Selection • Identify product mix and • Maintain Service Level • Load Consolidation; LTL to FTL capacity mixTIME SCALE Years Months DaysPLANNING Strategic Tactical OperationalNATURE Linear CombinationalTECHNIQUE LP LP/MIP/CP CP © 2010-12 OptiRisk India (P) Ltd, All rights reserved 11
  12. 12. Increasing customer Competitive Product proliferation service requirements pressure shorter product life cycles Pressure for improved Regulatory financial performance changes & inventory reduction Changing materials Change in players &handling & transport roles in distribution technologies channels Improved Pressures to develop communications & supply chain vision and information technology co-operation Need to redesign and improve efficiency of logistics system © 2010-12 OptiRisk India (P) Ltd, All rights reserved 12
  13. 13. 1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transportation Scheduling7. Solution Approach © 2010-12 OptiRisk India (P) Ltd, All rights reserved 13
  14. 14. Warehouse Production Facility Consumer Highway Production facilities Warehouses Retail stores Current and future demand Opening, Closing, and running cost of the SC network nodes Inventory cost at various nodes Overall transportation cost10 – 30% reduction in overall Supply chain and Logistics Cost © 2010-12 OptiRisk India (P) Ltd, All rights reserved 14
  15. 15. Most of the inefficiencies in operation comes from uncertainitiesSources of uncertainty in Structured, qualitative approach SCND in manufacturing 1 6 4 Probability 3 2 5 Severity © 2010-12 OptiRisk India (P) Ltd, All rights reserved 15
  16. 16. Supplier Bankruptcy Exchange Rates Productivity International conflict Labour Costs Demand Natural disasters Act of TerrorMaterial Costs Transport Costs © 2010-12 OptiRisk India (P) Ltd, All rights reserved 16
  17. 17. Efficient Frontier (Optimal Solutions)Logistics Cost Current (Sub-Optimal) Cost of stock outage (Service Level) © 2010-12 OptiRisk India (P) Ltd, All rights reserved 17
  18. 18. • Ordered and • Delivery time in • Delivered orderlines hours or days • Service time • Response time• Fastness (express, • Product range normal weekly) and availability• Delivery-lots • Claim procedure• Post-deliveries • Method to inform• Return policy about deviation • Observe customer requirements • Shipped too later or too early compared • Perfectly delivered to shipped in vs. shipped lines • Time lines • Number of claims © 2010-12 OptiRisk India (P) Ltd, All rights reserved 18
  19. 19. 1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transportation Scheduling7. Solution Approach © 2010-12 OptiRisk India (P) Ltd, All rights reserved 19
  20. 20. 90 85 80Days in Inventory 75 Target Company Competitor #1 70 Competitor #2 65 Competitor #3 60 Competitor #4 55 Peer Average 50 Q2-FY11 Q3-FY11 Q4-FY11 Q1-FY12 Q2-FY12 Reporting Period © 2010-12 OptiRisk India (P) Ltd, All rights reserved 20
  21. 21. 10 15 1022 24 Cost of capital 21 Storage and handling23 23 26 Obsolescence45 41 40 Damage and deterioration Pilferage/shrinkage Insurance Management costs © 2010-12 OptiRisk India (P) Ltd, All rights reserved 21
  22. 22. India 14 % 14% Japan 11%Europe 10 % USA 8% 0 5 10 15 20 © 2010-12 OptiRisk India (P) Ltd, All rights reserved 22
  23. 23. Items FY11-12 -1 Day Peer Avg Best Competitor UnitsDays in Inventory 71 70 61 53 daysRevenue 12,842 12,842 12,842 12,842 CrEBITDA 903 903 903 903 CrCOGS + R&D expenditure 11,939 11,939 11,939 11,939 CrR&D expenditure (2%) 239 239 239 239 CrCOGS 11,700 11,700 11,700 11,700 CrCapital tied up in Inventory 2,276 2,244 1,955 1,699 CrInventory carrying cost 0.03% 0.03% 0.03% 0.03% per dayInventory carrying cost per day 0.68 0.67 0.59 0.51 CrInventory carrying cost per year 249 246 214 186 CrCapital freed-up 32 321 577 CrReduction in Operating expense 3.5 35.1 63 CrNet Profit 607 610 642 670 CrCapital Employed 3656 3624 3335 3079 CrNet Profit Margin 4.73% 4.75% 5.00% 5.22% %Asset Turnover 3.51 3.54 3.85 4.17 TimesROIC 16.60% 16.84% 19.25% 21.76% % © 2010-12 OptiRisk India (P) Ltd, All rights reserved 23
  24. 24. 21.76% 53 5.22% 670 4.17 19.25% 61 5.00% 642 3.85 16.84% 70 4.75% 610 3.54 * * BC 16.60% 71 BC 4.73% 607 BC * 3.51 RoCE DiI NPM NP Asset Turnover Profit Profit Sales RoCE = = x Capital employed Sales Capital employed Capital Employed * BC 3656 3624Target Company FY11-12 3335-1 day reduction in DiL 3079DiI - Peer AverageDiI - Best Competitor BC – Base Case DiI – Days in Inventory © 2010-12 OptiRisk India (P) Ltd, All rights reserved 24
  25. 25. 10% RoCE 15% RoCE 20% RoCE 8.0 Desired level of service 7.0 Reduced operation cost Profit 6.0 21.76% Enhanced profitability Sales 19.25% Increased asset utilization(Margin) 16.84% 5.0 16.6% Increased RoCE Increased competitive 4.0 advantage 3.0 Target Company FY11-12 - 71 days 1.0 2.0 3.0 4.0 5.0 6.0 -1 day reduction in DiI – 70days Sales Cap Emp DiL - Peer Average - 61 days (Asset Turn) DiI - Best Competitor – 53 days © 2010-12 OptiRisk India (P) Ltd, All rights reserved 25
  26. 26. Variability of Demand Low Medium High A • ChangeInventory Classification Base and Safety Service Level Stock Strategy •Postpone •Made to B Order C • No Safety Stock Exit • Made to Order © 2010-12 OptiRisk India (P) Ltd, All rights reserved 26
  27. 27. 1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transportation Scheduling7. Solution Approach © 2010-12 OptiRisk India (P) Ltd, All rights reserved 27
  28. 28. Key QuestionsHow many trucks to use from the set of fleet andfrom which carrier?Which shipment option to use for each order?Which customer /vendor should be served by each truckand in what sequence?Are there ways to reduce cost and still maintain/ improve service level? © 2010-12 OptiRisk India (P) Ltd, All rights reserved 28
  29. 29. Should the company buy (or) lease (or) rent trucks?What-if the truck capacities are increased/decreased?What would be the impact of fuel price change to logistics cost?What-if alternate transportation options are used? © 2010-12 OptiRisk India (P) Ltd, All rights reserved 29
  30. 30. Software and What It Does for YOUUSE OPTIRISK / IBM SOFTWARE to get Optimized Vehicle Routes Software used custom OR models + CPLEX solver. Software is customized to YOUR BUSINESS needs.Software helps client to achieve : Reduced fleet travel distance / time / cost (5 to 30% saving) Reduced Customer-Response-Times Extra Carriage Capacity with same fleet (3 to 10% saving) Improved service Levels Significant Planning Man-Hours Saving (70% to 90% saving) Helps in long Term Planning © 2010-12 OptiRisk India (P) Ltd, All rights reserved 30
  31. 31. On-Time Delivery Increased VisibilityReduced Stock-outs Greater visibility and control Improved Service Level Increased Planning Productivity Satisfied Customers Enabled Employees Increased BusinessOptimized Delivery Routes Ease of UseFewer Fleet requirements Visual Displays Lesser driving distance / time. Ready to print customized reports Lower cost & Investment Visual Performance dash boards Increased ROI for KPI tracking Payback in months Less than six months ROI 1: 30 to 70 times (in 5 years) © 2010-12 OptiRisk India (P) Ltd, All rights reserved 31
  32. 32. Shareholder Value ROI Profit Investment Cost Revenue # TrucksLess mileage Business (10 to 30% ) Service Level . Planning Lead time Errors (5 to 10%) © 2010-12 OptiRisk India (P) Ltd, All rights reserved 32
  33. 33. Web based application; access from anywhere.Seamless integration with ERP systems.Planning generated in minutes.Custom views and reports for planner,dispatcher, manager, and top-management.Integration with maps for real-time trackingand planning.Manual over-ride on routes to take care ofunforeseen change in traffic and routes. © 2010-12 OptiRisk India (P) Ltd, All rights reserved 33
  34. 34. OptiRisk Route Planner & Scheduler Studio (ORPSS) © 2010-12 OptiRisk India (P) Ltd, All rights reserved 34
  35. 35. The client is one of the multinational fuel distributioncompanies having wide presence in India. The aim was to develop a automated planningtool which would reduce total cost incurred on out-bound logistics 23%+ reduction in total out-bound delivery transport cost. Total planning time is reduced to minutes. Payback of investment was less than a month Improved service level and increased customer satisfaction. © 2010-12 OptiRisk India (P) Ltd, All rights reserved 35
  36. 36. Average saving of 23% per day 70000 60000 50000 Savings Cost Incurred 40000 30000 20000 10000 0 02.06.2012 04.06.2012 09.06.2012 11.06.2012 23.06.2012Original cost 50,868 47,513 44,271 45,518 62,448New planned cost 37,784 42,645 30,664 33,651 38,204 No of deliveries 47 43 43 46 51 © 2010-12 OptiRisk India (P) Ltd, All rights reserved 36
  37. 37. 1. Business Challenges2. Optimization3. Supply Chain Management4. SCN Analysis & Redesign5. Inventory Analysis6. Transportation Scheduling7. Solution Approach © 2010-12 OptiRisk India (P) Ltd, All rights reserved 37
  38. 38. Data driven ApproachRobust solution for uncertain environment Observe • Expected variation, • Rare events (Tail Risk)Identify optimization opportunities Optimize AnalyzePrioritize itImplement one or a groupStabilize solutionGo to the next opportunity IF © 2010-12 OptiRisk India (P) Ltd, All rights reserved 38
  39. 39. Other RDBMS Database DB2 Top Management . . . .Web Server Intranet Firewall Planning & Execution External Staffs SPSS Server Router (Optional) Optimization Server Dealers Internet External Data Server (Optional) Suppliers © 2010-12 OptiRisk India (P) Ltd, All rights reserved 39
  40. 40. Agile Logistics Integrated Logistics Stochastic Knowledge Optimization Logistics From 2008 Internet Information From 2005 Logistics Knowledge Management From 1999 Data Data SizesLogistics From 1998 Work Flow Documents From 1992 Management System From 1990 Electronic Archive From 1988 © 2010-12 OptiRisk India (P) Ltd, All rights reserved 40
  41. 41. • Lower resource consumption • Reduced Carbon Emission • Greener Earth • Better Returns• Higher Satisfaction• Superior Value• Happy Customers • Lower Stress • Improved Employee satisfaction Dealers • Higher Morale Suppliers © 2010-12 OptiRisk India (P) Ltd, All rights reserved 41
  42. 42. ___________________________________________________________________________________________________________________________Achieve more with less © 2010-12 OptiRisk India (P) Ltd, All rights reserved 42
  43. 43. © 2010-12 OptiRisk India (P) Ltd, All rights reserved 43
  44. 44. Bala. Padmakumar Ph: +91 98406 18472 / +91 44 4501 8472 Email: optimize@optiriskindia.com Web: http://www.optiriskindia.com/Asia Pacific, Africa, Australia & Middle East : Europe & America : No 12, Ground Floor, 25th Cross Street OptiRisk R&D House One Oxford Road, Thiruvalluvar Nagar, Thiruvanmiyur, Uxbridge Middlesex, UB9 4DA, Chennai - 600041, India. United Kingdom. © 2010-12 OptiRisk India (P) Ltd, All rights reserved 44

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