Bullseye! Tools to help you target the right site (page 2)

-- Logistics Management, 1/1/2005

Page 2 of 3

You can also opt to have the software vendor run a network optimization model for you. When shippers contract with software providers for such services, they benefit from working with experts in the technology who can ensure that the customer gets the full benefit of the solution's capabilities, observes Mark Humphlett, senior business consultant for supply chain solutions at SSA Global.

Many software vendors, including SSA Global, LogicTools, and Insight, to name a few, provide this service. This option costs less than purchasing the solution. At Insight, for example, such a study would cost anywhere from $30,000 to $300,000, with the majority in the $70,000 to $120,000 range.

Another option is to work with a consulting company that offers network design services, using a commercial solution or software that it has developed in-house. This approach makes good financial sense for shippers that expect to use modeling tools on a limited basis, suggests Randy Wolcott, president of ProVenture Commercial Real Estate. "[The solution] doesn't really pay for itself," he says. "You should probably go with a consultant so that you don't have to foot the entire cost yourself."

Another benefit: Turning the analysis over to a consultant eliminates the need to train staff to use the software and can speed up the process considerably. "We do these analyses routinely and quickly, and we know the pitfalls," says Harris.

Consultants aren't the only ones that have developed or purchased network optimization solutions; some third-party logistics (3PL) providers offer similar services. Typically, they provide those services to existing customers. Cardinal Logistics, for example, has developed a proprietary system called xLocate. The majority of shippers that contract with Cardinal for network analysis are already using the 3PL's transportation and warehousing services, says Jerry Bowman, president and chief operating officer.

Putting software to work

No matter which of those options you choose, it's best to employ network modeling technology at the beginning of the site selection process. Most providers recommend using the solution to establish a baseline picture of current distribution network operations. "If you look at your history, you may find out that your business isn't operating the way you think it is," says Insight's Belshaw. "Just doing a baseline study shows you some significant short-term opportunities."

Creating a baseline of existing infrastructure can also give you a chance to consider cheaper alternatives to opening a new facility—adding materials-handling equipment or improving inventory management processes, for example. "You want to optimize your current space before your look at growing," advises Kevin Tedford, vice president of consulting for Forte, a consulting firm that specializes in helping companies improve their distribution operations.

Once you have an accurate picture of your current distribution network, you can use the software to figure out how to improve on it. Simchi-Levi recommends starting simply and then building complexity into the model. Smaller companies looking for a fairly inexpensive analysis can contract with a consultant to do an approximate, rather than an extremely detailed, optimization, suggests Chicago Consulting's Harris. "You want to do this because you will get a big bang for your buck early on from a high-level analysis," he says.

With that rough picture in hand, you can add complexity as needed. You might, for example, run several iterations of analyses with increasingly detailed information, or later on, you could run the model using information for specific sites.

The level of complexity will drive the type of data you'll need to collect. At the most basic level, this data will probably include demand (where your customers are, last year's order history); supply (where your suppliers and manufacturing plants are); transportation (last year's transportation numbers); and product (typically product families or categories rather than SKUs).

More complex networks require more detailed data. Staubach Company's Bjorson uses a data collection checklist that organizes information by function, type, purpose, requested form (or measurement), and time frame. One example: For the inbound function, shippers are asked to create plant-to-facility "rate curves." The purpose is to estimate inbound rates where point-to-point rates aren't available. The requested form would be a sample of 30 to 50 rates from an origin point to various destination points, expressed as dollars per unit, and the time frame would be "current." Continued...

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