Asset Planning using Supply Chain Optimization Technology
Depending on the mode and position in the industry, it is not uncommon for truck and rail companies with revenues greater than $500 million to budget upwards of $100 million on asset operating costs annually. Improving asset utilization continues to present an opportunity and a challenge for these companies as they look to reduce operating costs. An opportunity exists for substantial financial savings through improved asset utilization as asset costs account for a significant portion of operating budgets. The challenge, however, is to achieve the results while enabling revenue growth and improving service reliability. The solution for transportation companies is to obtain quality planning information which strikes a balance between revenue growth, cost reduction and service reliability. Today’s solutions are delivering savings of 5-15 per cent of operating costs.
Advance Planning Technology
Advance planning technology can enable and enhance an organization’s capability to develop reliable tactical plans. Tactical planning is defined as the ability to balance load versus capacity over an extended time horizon; traditionally a “blind spot” for many large carriers. In addition, advance planning can improve and extend an organization’s capability to plan operationally as an information-rich environment is created. Operational personnel now have visibility to forthcoming asset requirements and can apply this information in their day-to-day decision making process to augment their intuition and experience.
Leading transportation companies are beginning to use supply chain optimization software as their advance planning technology solution. Supply chain optimization software uses advanced algorithms and emerging information technology to model supply chain networks and resolve complex problems against multiple constraints. Within a transportation network, the optimization algorithms focus on maximizing demand fulfillment of a carrier’s primary service while minimizing costs related to empty asset moves. The application of this technology is intended to improve asset utilization, increase revenue and improve service reliability. The high level of configurability of the software allows it to emulate a transportation asset network and produce tactical asset plans for truck, intermodal or rail.
Components of the Technical Solution
There are three main data elements required by the software, a network model, asset inventory data and demand information. The network model is built through a data representation of an organization’s transportation network. Facilities such as terminals, DC’s, warehouses are configured as nodes within the network. Connecting these nodes, if applicable, are lanes with inherent properties such as lane restrictions, schedules and transit times. Asset inventory data provides the number of assets available, where they currently are or where they are destined. The demand data can be represented by shipper forecasts, shipper orders or a combination of both. Demand data is required, at a minimum, to span the operating plan horizon.
The software uses these elements to optimize the fulfillment of demand against the current asset inventory information using the constraints applied by the network model over the planning horizon. The software plans and registers the movement of assets over the network in order to build the detailed asset plans.
As with any system implementation, clean, timely operating data is a key to the accuracy and ultimate success of the technical solution. This application is no exception and may even be more dependent on a clean data feed since the “snapshot” of the inventory data is being extrapolated over multiple shipment cycles.
As an example, the inventory data needs to include assets that are available for shipments at the time of the data upload as well as inventory that is currently in-transit. In-transit inventory must have an ETA to allow the software to know at what date it will be available for its next shipment.
Another critical data component is the demand data. Historically, transportation companies have very little visibility into their shipper’s planned shipment releases or equipment orders longer than a few days. As such, it is next to impossible to build asset plans which encompass multiple shipment cycles with order information. Therefore, an accurate picture of future demand data may need to be assembled from a combination of shipper orders, shipper forecasts or statistically generated forecasts based on historical data.
Supply Chain Optimization Systems have historically been applied to plan and optimize manufacturing supply chains. However, manufacturing supply chains are consuming supply chains where the materials being planned and optimized are consumed at their final destination and are not reusable. Transportation networks are not consuming but circular such that assets reaching their final destination are “reused” by the destination facility. The destination facility then becomes the origin for the next equipment directive. Fortunately, the software has functionality that allows it to emulate a circular supply chain and allow transportation assets to be used as supply at any destination facility.
Organizational Challenges
Implementing enterprise technology is a complex and difficult job; however, it is only one facet of the solution. A comprehensive advance planning solution is as much about implementing technology as it is about transforming the organization by building and harnessing the capabilities of its people, business processes and information.
Typically asset management departments are focused on very short-term operational planning or longer-term strategic fleet sizing. The scheduling and operational planning effort is a very intensive data gathering effort to support the decision-making process. However, the exercise is reactive with decisions being made with very little visibility to future events. Insufficient time is spent in the tactical planning zone typically due to a lack of high quality reliable information. Advance planning capabilities transform the planning process and effort. Advance planning operators address problems and issues days and weeks in advance as opposed to reacting to crises and fighting fires within the execution window. Tactical planning addresses issues such as resource requirements, asset shortage issues and capacity load balancing.
Supply optimization software delivers value through solving complex problems involving potentially millions of constraints. Attempting to understand how the optimization works and how the software reaches its conclusions is next to impossible. Another level of complexity is a result of the software optimizing the entire network over the entire planning horizon. The resulting planning information may be counter-intuitive to an asset planner used to focusing on very short-term planning. Traditionally, operational planning decisions that may have seemed sound today are not optimal on the full network over one or two shipment cycles. Unfortunately, the technology can be viewed as a black box. Instead of attempting to understand complex optimization routines, an asset planner’s time is better spent building their trust and confidence in the solution through plan analysis and interpretation. The job of the asset planner must fundamentally shift from a reactive data collector to an interpretive decision maker. This is not always a trivial transformation and is a key factor in staffing the transformed organization.
It is imperative that an organization have the capability to calculate and produce key metrics to ensure that they are receiving the return on their organizational business transformation and financial investment. These measurements must focus on all aspects of the implementation, specifically organization, process and technology. Effective metrics are simple, reportable, representative and controllable within the organization. There may be existing metrics that provide an indicative representation of the operation’s performance or given the enhanced capabilities provided by the solution there may exist new metrics designed specifically determine success against the investment. Either way, the metrics are critical to determining that the organization is achieving its goals around cost reduction, revenue growth and/or service reliability.
Summary
The information provided by the tools is powerful for asset planners and operating departments. There are other effective applications of the information that can assist in achieving revenue goals as well. The planning solution provides an organization with highly reliable information regarding excess capacity and empty asset movements. A Commercial department should be able to leverage this information into capacity sales or spot sales initiated through price incentives. There are challenges to overcome using this operational information to influence the market but it is powerful. With the appropriate collaboration between Operations, Commercial and their shippers it is information that can be leveraged to achieve benefits for all involved parties.
The benefits of an asset planning solution are compelling for organizations struggling to improve their bottom line through improvement in asset operating efficiency. System implementations are ultimately deemed successful when ROI is met or exceeded. Many times an organization can fall into the trap that once the technical implementation is complete the initiative is complete. However, the entire solution needs to be sustainable to be successful. Sustainability and success is achieved through the entire organization harnessing the new capability and information to achieve business benefits.