The missing piece of the profit economy isn’t ERP

The missing piece of the profit economy

Where are you looking for supply chain improvements?

If you want to know what went wrong (or right) in the past, look in your ERP system. The answers are right there.

But if you’re looking to add significant sums to your bottom line, it’s not the past you need to get a handle on. It’s the future. As Victor Allis, CEO of Quintiq, said in a recent presentation at Gartner’s Supply Chain Executive Conference in Phoenix, Arizona, “There are no decisions to be made in the past. But when you start exploring the future, suddenly you have all these choices. There are an infinite number of possible futures that you can still shape.”

So can you really shape the future? Do your planners have the control they need to achieve business goals?

Not all those futures are equally good for your bottom line. In some of those futures, the business has missed an enormously important order for a customer and is facing cancelled contracts. In others, you’ve ended the year with a 20% reduction in costs and a huge improvement in delivery performance.

How do you navigate all those possibilities to ensure you achieve the best possible outcome for your business?

“I’m CEO of Quintiq, but most of all I’m a guy who likes to solve puzzles.”

Dr Allis’s opening remarks at Gartner were deceptively simple – rather like the supply chain planning puzzles that businesses face daily.

For example, how difficult can it be to plan 43 deliveries with six trucks?

Intuition says, ‘No big deal!’

The math says that inspecting all the available options would be like inspecting each atom on planet earth.

So how do planners actually arrive at a good solution that incorporates all constraints and customer requirements, and maximizes efficiency?

They don’t. They struggle to arrive at a solution in which all orders are delivered on time and, when they find it, they stop looking and move on to the next planning challenge.

Large, successful companies don’t have six trucks and a few orders. They have hundreds of trucks and thousands of orders.

“So if anyone says, ‘Yes, we looked at all the options and this is the optimal solution,’ that’s… ”

First, looking at all those options is humanly impossible.

And second, as Dr Allis pointed out, there are some interesting statistics on the subject.

“One of the things we do for companies is to create benchmarks. We say, ‘OK, so you have this number of trucks. Tell us what your rules are. Give us the addresses of your customers. Give us the routes you actually run for a week. And then we’ll run it on our software platform.”

And here’s the interesting part – we have never come across a situation where we weren’t at least 5% better. Ever. We’re always between 5% and 20% better.”

Even a 7% reduction in distances traveled and a 10% reduction in vehicles used represents a huge amount of untapped optimization potential for a company with a large fleet. If you’re running a fleet of 90 to a 100 trucks your savings easily add up to millions of dollars annually.

And, in case you’re wondering, the 20% ceiling isn’t there because Quintiq – the holder of four world records in logistics optimization – is short of world-class optimization expertise. It’s there because a plan that’s at least 20% worse than what our optimizers achieve tends to be noticeably bad, and gets revised by planners. Anything less than that, and human planners are simply incapable of spotting the difference between plans that save millions and those that leave millions on the table.

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To discover more hidden optimization potential in production and workforce planning, catch Dr Allis’s presentation on ‘The missing piece of the profit economy’ here.

To read more about Dr Allis’s views on optimizing logistics, check out ‘Groceries could be Amazon’s next killer app – if it can solve the math’ in Wired.