Stay Competitive by Adding Production Modeling to Supply Chain Designs
(As seen in insiderPROFILES here)
By: Toby Brzoznowski, Executive Vice President, LLamasoft, Inc.
July 1, 2013
At one time, production modeling was used by plant-level operations engineers for a sole purpose: to utilize capacity and schedule production. However, many of the world’s leading companies have realized that expanding their production modeling strategy to include production footprint and capacity optimization as part of their end-to-end supply chain design practice can help them effectively surpass their competition.
The following five considerations can help ensure your company gets the most out of your production modeling design.
#1: Off-Shore vs. Near-Shore Manufacturing Strategy
One of the most important decisions production or manufacturing companies face is where to create products. Companies often fall into the trap of focusing only on the production or investment costs and forget to view the entire end-to-end supply chain, which includes the interdependencies of many cost factors including transportation, inventory, and tax. For example, some labor costs may be lower in China, but when cargo ship fuel and time-to-market considerations are factored in, off-shoring may not be as attractive an option.
Decisions should be optimized across the entire supply chain. With supply chain design software, organizations can identify the tradeoffs across multiple cost elements to clarify off-shore vs. near-shore manufacturing decision making.
#2: Production Footprint Optimization
Put simply, the production footprint represents the physical facility and quantity in which each product is manufactured, along with the capacity required to make it happen. As demand for product shifts over time, the production footprint should also change to keep in sync. This may mean investing in additional capacity in certain locations or completely moving production capacity to other facilities within the network. Modeling applications allow companies to analyze varying scenarios, enabling them to balance existing capacity with the investment required for additional production.
#3: Effective Capacity Planning for Lowest Total Cost
After companies put a manufacturing strategy in place and choose a production footprint, many tactical choices can still drive significant cost savings and operational improvements. Supply chain design software allows users to view detailed models of the entire production capacity as a function of the end-to-end supply chain. These models can help a business determine the production location, timing, and quantity of each product throughout the network to best utilize capacity at the lowest total cost. The solution can also determine lot sizing, labor shift allocation, working hours, or the best utilization of changeovers.
#4: Fine-Tuning Production Plans in Response to Changing Conditions
Seasonality, promotions, and other situations that influence product demand can place stress on production schedules and overall capacity. Regularly reviewing demand forecasts as the information becomes available can help companies balance limited production capacity with demand volumes. This requires production strategies such as pre-building of goods or pre-positioning of inventory for certain products so that capacity remains available for the most critical items.
#5: Risk Analysis to Quickly Address Planned and Unplanned Events
Supply chain design modeling technology has become a critical method by which companies can examine how their supply chain will perform under a wide range of planned and unplanned events and analyze the trade-offs between cost, service, and risk. For example, it is imperative for organizations to react quickly and effectively to power outages or natural disasters that affect their supply chain operations. Businesses can use supply chain models to identify and plan next steps during emergencies, as shown below.
Companies that maintain these living digital models are able to mitigate business risk through the engineering of their supply chain operations, therefore enabling significant and sustained advantage over competitors.
LLamasoft’s Toby Brzoznowski sat down with SAPinsider to discuss the latest trends and factors impacting how organizations today are approaching supply chain design. To view the video, please visit http://bit.ly/16JGhtN.
LLamasoft Can Help
LLamasoft’s supply chain design software, such as Supply Chain Guru, can assist companies in addressing these five key considerations to inject production modeling into their end-to-end supply chain design practice. Learn more at www.llamasoft.com.
Toby Brzoznowski is Executive Vice President of LLamasoft, Inc. He has over 20 years of experience building and growing businesses, focusing on process improvement and analysis technologies. His expertise has been applied to bringing new and advanced technologies into mainstream use at global Fortune 500 businesses. In the last decade, Toby has been involved in the start up of three technology companies. He is a graduate of the University of Michigan and a frequent presenter at supply chain and strategic sourcing events.