Optimized: Software Tightens Supply Chains

The expertise United Parcel Service Inc. has developed in supply-chain-optimization technology is helping it win customers in manufacturing, such as DaimlerChrysler AG. Other manufacturers are looking closely at how they, too, can benefit from using optimization software to improve their supply chains.

The Henkel Group, a $12.1 billion-a-year manufacturer, needs a way to make quick decisions about inventory, production runs, manufacturing sites, and the other particulars that make up its vast supply chain. In part, that's because product life cycles are much shorter, and retailers understand trends more quickly, says Gene Obrock, VP of operations at Henkel Consumer Adhesives Inc., a division that makes Duck brand duct tape.

"They don't necessarily have to wait a year before determining a product isn't any good and killing it," he says. "We need to have an instantaneous way of monitoring daily and weekly, so we don't decide to open up a new warehouse because we just introduced new products, only to find out in 45 days that the products aren't going to be successful."

The company is looking at supply- chain-optimization software from Optiant Inc. that would let it graphically model the supply chain as well as compare and contrast various business scenarios against optimal inventory targets. Optiant's algorithms are dynamic and scalable enough to allow companies to look at data in real time, Obrock says.

Henkel used optimization software from supply-chain consulting and services firm Insight Inc., an Optiant partner, four years ago to help determine where to build a new U.S. distribution center. "We wanted to find out where the optimum spot would be that would let us minimize freight costs while still meeting customer needs," Obrock says.

Since UPS began its journey to develop its own optimization software, more commercial vendors have come on the scene, including Ilog, Logic Tools, Optiant, and SmartOPs. Supply-chain-management software vendors have built into their products optimization techniques or added standalone optimization tools to their suites. SAP, for instance, offers Supply Chain Advanced Planning and Optimization.