inventory routing as the way forward - ortec whitepaper - inventory routing as the way...vendor...

Inventory Routing as the way forward

How new technology can bridge the gap between planning and execution

An ORTEC White PaperMarnix du Clou, Ilona Scholte and Janneke Lagerwaard Global Industry Leaders Oil, Gas and Chemicals

2 ORTEC Inventory Routing as the way forward

Table of contents

1. Introduction 3

2. Vendor Managed Inventory 4

2.1 Supply chain collaboration 4

2.2 What is vendor managed inventory? 4

2.3 BenefitsofswitchingtoVMI 5

2.4 Vendormanagedinventoryinpractice 5

2.5 Whatiscustomerinventorymanagement? 5

2.6 Whatisfleetmanagement? 5

3. Integrating planning and execution 6

3.1 Customerinventorymanagement:focusonplanning 6

3.2 Customerinventorymanagement:focusonexecution 7

3.3 Customerinventorymanagement:integratingplanningandexecution 7

3.4 Fleetmanagement:focusonplanning 8

3.5 FleetManagement:focusonexecution 8

3.6 Fleet management: integrating planning and execution 9

4. Integratingcustomerinventorymanagementandfleetmanagement 10

4.1 Supplier results 10

4.2 Customer results 10

4.3 Tangible results - case studies 10

4.4 What could be next? 11

5. Changing the way you work 12

5.1 Whyisthereaneedtochange? 12

5.2 Effectivechangemanagement 12

5.3 Resourcesandsystems 12

5.4 Productsandprocesses 12

5.5 Peopleandculture 12

5.6 Managementandorganization 12

6. Conclusion 14


Industry Challenges and Market Drivers

Today’s economic environment poses quite some challenges to the Oil and Gas industry. Historically low

crudepricesputagreatpressureonthedownstreamoilandgasoperations.Fortunatelymostoftheoiland

gasdownstreamorganizationshaveshowntohavetheflexibilitytohandlethesechallenges.Inthepast

yearsthedownstreamindustriesdemonstratedtohavethecapabilitytomaketherefineriesmoreefficient

and to introduce smarter supply chains and distribution processes. Given the current challenging market

circumstances,thesebusinessdriversremainutmostrelevantasisunderlinedbytherecentstudyofDeloitte

MarketPoint(2014).AccordingtoDeloitte,OilandGascompaniescontinuetofocusonreducingtheoverall

costs.ItisnotwithoutreasonwhyOilandGascompanieshavelookedatasmartersupplyordistribution

operationssinceseveralstudiesindicatethatsupplychaincostsaccountsforuptoapproximately70%of

theoverallcostandtransportationcostsareasignificantpartofthis.

Optimizingthedistributionandtransportationcostsremainshighoneveryexecutive’sagendanowadays.

ThisaccountsformanycompaniesofprocessindustriesandinparticulartheIndustrialGasindustry.

AccordingtheGlobalIndustryGasMarket2014-2018(2014)theCAGRisforecastedat7,3%fortheperiod

between2013and2018.Furthermore,thisreportindicatesthatthemainbusinesschallengeforthisindustry

are the high distribution costs.

Inordertoreducethedistributioncostandtoimprovethesupplychaintheindustryisseekingtointroduce

newtechnologiesandinnovations.AccordingthelogisticstudyperformedbyCapGeminiConsulting(2012,

p15),“shippersareseekingincreasinglyrelevantsupplychaininnovationsthatreducecostsaswellasvalue

add.”Onewaytodriveinnovationistoorganizethesupplychaindifferentlyandtoviewitfromtheend-

customerfirst.Oneofthesupplychainconceptsthatfollowsthis“demand-pullstrategy”iscalledVendor

ManagedInventory(VMI).VendorManagedInventoryhasthekeyelementof“demandforecasting”fully

embeddedandhasalreadybeensuccessfullyappliedintheretailindustry.Onewell-knownexampleisthe

companyWal-Mart,whichoftenhasbeenusedasabenchmark.Wal-Martservicesabouta100million

customersandhasagloballyintegratedsupplychainnetwork,whereVMIplaysavitalrole.

Followingtheexampleoftheretailindustry,alsoOilcompaniesimplementedtheVMIconceptfortheirfuels

distributionandjustrecently,alsoIndustrialGascompaniesintroducedtheVMIconceptintotheirsupply

chains. Customer implementation in both industries shows that staggering cost reductions can be achieved.

ThemainbenefitofVMIisthatithandlesstockreplenishmentandrouteschedulinginasingleenvironment.

Ontopofthisbenefit,thisconceptalsoincreasestheflexibilitywhenitcomestocustomerdeliverytimes

and the overall delivery volumes.

ThiswhitepaperdescribesthesupplychainconceptofVendorManagedInventoryinfulldetailand

describessomeexamplesofcombiningplanningandexecution.Thelastpartofthiswhitepaperalso

expoundsthevalueofeffectivechangemanagementprogramsinordertobringaboutimperative

operational,technologicalandcollaborativechangesthatarekeytoasuccessfulimplementation.

1.

References:DELOITTE MARKETPOINT

(2014), Oil Prices in Crisis

- Considerations and

Implications for the Oil and Gas

Industry. Houston

SANDLER RESEARCH (2014),

Global Industry Gas Market

2014-2018. Dallas

CAPGEMINI CONSULTING

(2012), 2013 Third-Party

Logistics Study: Results and

Findings of the 17th annual

Study. Atlanta


Vendor Managed Inventory

Supply chain collaboration

Traditionally, companies have set up relatively static supply chains because they were unable to handle

amoredynamicwayofworking.This,however,ischangingduetotheincreasingleveloftransparency

offeredbynewtechnologies.Supplychaincollaborationreferstoanytypeofhorizontalcooperationbetween

producers,logisticserviceprovidersandcustomersthatisaimedatimprovingdistributionefficiency.

Itcanalsorefertothecollaborationbetweenmultiplelogisticsserviceprovidersintheareaofintermodal

transportorsharedloads.Oritmayevenrefertocollaborationbetweendifferentproducersinordertoshare

assets,swaploads,exchangedeals,oruseeachother’sdepotsforloadingactivities.Itistrendssuchas

these, in addition to the need to reduce CO2 emissions, that has led to an increase in programs designed to

improvecustomerintimacyandaligntransportationwithproductionactivities.Oneofthebestexamplesof

thiscollaborationisVendorManagedInventory(VMI),whosedefinitionisexaminedinmoredetailbelow.

What is Vendor Managed Inventory?

Recently,AMRResearchindicatedthattheglobaleconomicdownturnandtheneedforimprovedinventory

visibilityandefficiencyhasledtoaresurgenceinvendormanagedinventoryprograms.Sowhatdoes

theterm‘vendormanagedinventory’actuallymean?Athighlevel,itcanbedescribedas:...ameansof

optimizingsupplychainperformancewherebythesupplierisresponsibleformaintainingcustomer’s

inventorylevels.Thesupplierhasaccesstothecustomer’sinventorydataandisresponsibleforgenerating

replenishmentorders.TheactualobjectiveofaVMIprogramistoboostfillrateperformance,e.g.increase

deliveryefficiencyfromsuppliertoendcustomerinordertolowercustomerreplenishmentcosts.

Thisconceptisnottobeconfusedwithconsignmentstock,whichisstockthatisheldatthecustomer

site but owned by the supplier until such time as it is sold or used by the customer.

Inactualfact,vendormanagedinventoryismorethanjustalogisticsconceptbecauseithasanimpacton

andrequiresinvolvementfromothernon-logisticaldepartments.Financewillneedtobeintheloopbecause

2.

Figure 1:

Vendor Managed

Inventory

2.1

2.2

Plant/Depot Fuel/GasStation

Sales Stock

Delivery Goods

Data analysis Delivery Notice


thedeliveriesmadewillaffectthecustomer’saccountbalance.Inaddition,salesandcustomerservice

operations will need to change the way in which they communicate and interact with customers.

Ifacompany’sVMIprogramistobesuccessful,thesetypesofoperationalchallengesmustbeaddressed.

BenefitsofswitchingtoVMI

Companiescanreaphugebenefitsbyswitchingtoavendormanagedinventoryrelationshipwiththeir

clients.Forthecustomer,VMIresultsinincreasedprofitabilityasaresultofreducedinventoryand

administrativecosts,fewerstock-outsorshortages,andincreasedsales(fordistributorsandretailers).

Forthesupplier,VMIdeliversincreasedprofitabilityasaresultofincreasedsales,reducedoperatingcosts

andstrongercustomerrelationships.Andforbothparties,VMIprovidesbetterinformationforplanning

(e.g.demandvisibility)andacloser,moreeffectiveworkingpartnership.Andinexchangefortheirtrustto

deliverontime,companiescanmakequitesignificantreductionsintransportationandinventorycosts,

althoughtheamountsavedwillvaryaccordingtoindustry.Intheretailsector,whereinventorycostsare

about12%oftheoverallcosts,VMIsavingswillbelowerthaninthefuelssectorwhereinventorycostsare

nearer80%.TransportationsavingscanalsoberealizedbyswitchingtoamoreefficientVMIoperationatthe

terminals and depots.

Vendor managed inventory in practice

Forvendormanagedinventorytoworkinpractice,organizationsneedtoimplementeffectivecustomer

inventorymanagementandfleetmanagementprocesses.However,itisimportanttoclarifywhatwemean

bythesetermsandtodistinguishtherolethattheyplayintheultimategoalofboostingfillrateperformance

and increasing customer service.

What is customer inventory management?

Customerinventorymanagementistheprocesswherebythesuppliertakesonresponsibilityformanaging

acustomer’sinventorylevels.Forthisprocesstoworkeffectively,thecustomermustplaceagreatdealof

trustinthesuppliertoreplenishtheinventorybeforeastock-outoccurs.Thesupplier,inturn,mustexercise

goodjudgmentaboutwhenastock-outislikelytooccuranddeterminetheoptimaltrade-offbetween

deliverysecurityanddeliveryefficiency.Ingeneral,themostefficientreplenishmentisachievedwitheither

afulltruckloadorafullcustomertank,althoughotherfactorsmaycomeintoplay,suchasthecostof

ownership,pricefluctuationsetc.

Whatisfleetmanagement?

Fleetmanagementisthetermusedtodescribetheselection,management,allocationandroutingof

vehiclesthatarerequiredtodelivergoodstothecustomer.Anumberofimportantdecisionsregardingthe

fleetneedtobemadeinordertoensurethatcustomersreceivethecorrectoradequatequantitiesontime.

Decisionsregarding:thenumberandtypeofvehiclesrequiredtofulfillallcustomerorders;theassignment

ofvehicle/drivertoaspecificdeliveryroute;theoptimaldeliveryroutesequence.Eventhesourceofvehicles

needtobedecidedupon,e.g.ownfleetversushiredfleet,becausetheaddedflexibilityofhiringinvehicles

willinevitablyresultinhighercosts.Effectivefleetmanagement,therefore,isallaboutfindingtheidealtrade-

offbetweenflexibilityandcosts,whileensuringthatresourceassignmentandvehicleroutingareplannedin

the most optimal way.

2.3

2.4

2.5

2.6


Integrating planning and execution

Thepreviouschapterdescribedcollaborativevendormanagedinventoryandsomeofthehighlevelbenefits

thatcanbeachievedbyhandingoverreplenishmentresponsibilitytothesupplier.Thissectionwillnowfocus

ontwokeysupplychainsilos-customerinventorymanagementandfleetmanagement-andthewayin

whichcompanieschoosetomanagetheseprocesses,i.e.planninginadvanceorfocusingonexecution.We

willdiscusstheadvantagesanddisadvantagesofthebothmethodsbeforehighlightingthemerits

ofintegration.

Itisimportanttonotethatcompaniesoftendifferinthewaythattheychooseimplementandoperatetheir

processes.Someorganizationsareverymuchfocusedonplanning(onedaytooneweekinadvance),

whileotherorganizationsprefertofocussolelyonexecution(nextshifttoalmostreal-time).Itisquiterare

tofindcompaniesthathavefullyintegratedthesetwofunctions.Similarly,companiestendtosetup

separatecustomerinventorymanagementandfleetmanagementdepartments,whichmeansthat

operationaldecisionsaboutcustomerdemandandtheactualdeliveriesaremadebydifferentpeople.

Thiscanresultinalackofcohesionbetweenthetwo,whichwewilllearnmoreaboutlateroninthissection.

Customer inventory management: focus on planning

Customerinventorymanagementplanningistypicallyconcernedwithfixedfrequencydeliveriesand

representsthetraditionalwayofworkingformostcompaniesthatsupplyslowmovingconsumergoods.

Inthefastmovingconsumergoodsindustry,however,thistypeofplanningisquitedifficulttoimplement

andthereforeitisoftenleftoutaltogether.Companieswillgenerallyperformdemandplanningatastrategic

level in order to allocate supply on a monthly basis and on occasion, though somewhat rarer, inventory and

demand planning will be done on a more operational level, i.e. weeks or days ahead.

Inthecaseofslowermovingproducts,customerinventoryplanningisallaboutdeliveringagreedvolumes

atafixedfrequency,basedonpredefineddeliverystrategies.Insomecases,acompanymayuseasimple

forecastingalgorithmtoestimatedeliveryvolumes,i.e.averageusageperday.Onatacticallevel,theymay

createterritoriesandassignfixeddeliverydaystothem,butthistendstobetheextentoftheiroptimization

efforts.

3.

Figure 2:

Integrating planning

and execution

3.1

Customer Inventory Management

1 day - 1 week ahead Same day - real time

ExecutionPlanning

Fleet Management


Theadvantageofthisapproachisthatitprovidesahighdegreeofcertaintyforachievingon-timedeliveries,

whichleadstoenhancedcustomerservice.Thedownsideisthatquiteoftenthedeliveryvolumesaresmall

andthereforeinefficient.Butbyswitchingfromfixedfrequencydeliveriestoforecastingestimateddelivery

dates,companiescanactuallyincreasetheiraveragedeliverysizebyover20%.

Customer inventory management - planning

Advantages: Delivery certainty, high levels of customer service

Disadvantages: Inefficient deliveries

Customer inventory management: focus on execution

Companiesthatfocussolelyonexecutionfortheirinventoryreplenishmentaretypicallyconcernedwith

deliveryatsafetystock.Thismethodofworkingistraditionallyusedinthefastmovingconsumergoods

industry, where customers call in their last-minute orders or telemetry is used to calculate the required

deliverydate.Thebenefitofthisapproachisthatitenablescompaniestocreatejust-in-timedeliveries,with

larger and more precise volumes.

However,thisrelianceonreal-timeinformationdoescarryacertainamountofrisk.Firstly,thereisthe

technicalriskofinterrupteddataflows(wheretelemetryetc.isinuse).Secondly,thereistheoperational

riskassociatedwithcreatingplanssoclosetoexecution.Ifmultiplecustomerscallintheirordersatthe

sametime(justbeforeaweekend,priortotheholidays,beforetheonsetofacoldspelletc.)thenthiswill

undoubtedlycauseworkloadbalancingissues.Withouttheforesightofadvancedplanning,additional

resources will be required to make these deliveries on time and prevent customer stock-out situations.

Furthermore,thisplanningapproachlackstheflexibilitytorespondtochangesindemandpatterns.

Customer inventory management - execution

Advantages: On-time delivery, large quantities, exact volumes

Disadvantages: High risk of stock-outs, inefficient workload balancing

Customer inventory management: integrating planning and execution

Previously,weexaminedhowcompaniestypicallyperformtheircustomerinventoryplanningandwelooked

attheadvantagesandassociatedrisksofeachmethod.Wewillnowinvestigatethebenefitsofintegrating

thesetwoplanningapproaches,whilealsohighlightingthepotentialrisksofchoosingnottointegrate.

Allcompaniesneedtoanticipateandplanforpeaksinproductdemand.Butbysolelyfocusingonexecution,

thesesamecompanieswillbelessequippedtohandleanysurgesthatmayarise.Similarly,ifaterminalis

temporarily shut down this will also impact product availability, resulting in longer lead times and the need

toensurethatotherdepotsarecoveringtheshortfall.Whetheritisasupplierorproductionbusiness,all

departmentsneedtobekeptinthelooptoensurethecorrectdeliveryquantitiescanbemet.Ifthisprocess

isnotmanagedeffectivelyandefficiently,therewillbeanincreasedriskofstock-outsattheterminalor

depot. This in turn will adversely impact customer deliveries and customer service levels.

Byintegratingtheplanningandexecutionfunctionsforcustomerinventorymanagement,however,

companies will be better prepared to deal with the extra workload should product demand increase.

Furthermore, by uniting the people involved in the planning process, it will be possible to balance volume over

3.2

3.3


days,weeksandregionsandgainabetterunderstandingoftherequiredproductlevelsforeachsite.This

informationcanbeusedtoprovidevaluableinputfortheproductionprocess,thepurchasingdepartment

andtheprimarytransportationgroup.Eachfunctionwillbebetterpreparedtoanticipatedemandandthe

dispatcherwillbebetterequippedtodealwithlastminutechanges,whilebeingawareoftheexactdelivery

volumesthatarerequiredforeachcustomeratanyspecificpointintime.

Customer inventory management - integrating planning and execution

Advantages: Volume balancing, advanced knowledge of stock requirements

Lack of integration: High risk of stock-outs, inability to deliver to customers

Fleet management: focus on planning

Mostcompaniestendtofocusonrouteplanningandoptimizationbecausethisiswhereguaranteed

efficiencyimprovementscanbemade.Byimplementingtherightsolutiontocreategeographicallyclustered

routes,companiescanreducekilometersandplanningtimebyatleast10%.Andthisisperhapsthebest

way to simultaneously lower carbon emissions and reduce costs.

However,therearetwodistinctdisadvantagesofoptimizationsoftwarethatisusedtoplanroutesin

advance. Firstly, the solutions only take into account and schedule unplanned ‘must-go’ orders, e.g. the

ordersthatareactuallyduefordelivery.Theylacktheconceptofopportunistic‘may-go’orders,e.g.orders

thatmaybedeliveredtodayorduringthenextfewshiftsbutwhichdonotactuallyhavetobedelivereduntil

later.Asaresult,thesoftwaredoesnothavethecapabilitytosignificantlyenhancethesavingsthatcanbe

made.

Theseconddisadvantageofjustfocusingonrouteplanningisthatmanyoftheactualroutesaredisrupted

duringexecutionduetoemergencies,breakdowns,last-minuteorders,trafficconditions,andotherunforeseen

events.Andtheseadhocchangesoftenresultinsub-optimalplans,astheimpactofthechangesmadecan

notbeassessed.Iftheselastminutechangescouldbeincorporatedintherouteschedules,theplanningwould

bemorerobust,moreoptimalandmorecosteffective.

Fleet management - planning

Advantages: Optimally clustered routes, reduced kilometers and transport costs

Disadvantages: Lacks concept of ‘may-go’ orders

Fleet Management: focus on execution

Nowadays,trackandtraceprogramsarefrequentlyusedtoassistcompaniesinmanagingtheirroute

schedulesduringtheexecutionphase.Theincreaseintheuseofonboardcomputersmeansthatbusinesses

cancallupawealthofinformation,suchas:vehiclelocation,speed,theactivitiesbeingperformed,andthe

typeofstockbeingtransported.Furthermore,thedispatchercanviewallvehiclesonadigitalmaptoassist

inexecutinganyplanningactions.Notonlydoesthishelptoimproveoverallperformancebutitalsoprovides

ahugeboostforsafetyandcomplianceduetoincreasedinsightandtransparency.

3.4

3.5


However,themaindisadvantageofthesetypesofprogramsisthelackofintegrationcapabilities.Anumber

ofsimpletrackandtraceprogramscanbefoundonline,butitisnotpossibletointegratethemwiththe

mainplanningsystem.Asaresult,anyadhocrouteordeliverychangesmadeduringexecutioncanbe

communicatedviaalerts,buttheplanswillnotbeautomaticallyupdatedandcertainlynotre-optimized.

Fleet management - execution

Advantages: Greater insight & transparency, increased compliance & safety

Disadvantages: Lack of integration with planning system, impact assessment of ad-hoc changes

Fleet management: integrating planning and execution

Thetrendtowardsintegratingplanningandexecutionforvehicleroutinghasbeengrowingforanumber

ofyears.Thisgrowthisstillongoingandnewdevelopmentsarebeingreleasedonacontinualbasis.For

thisreason,companiesshouldmaintainagreatdealofforesightwhenselectingaplanningsolutionand

aimtochooseasystemthatwillbeabletocovertheircurrentrequirementsaswellasanypotentialfuture

developments.

Themostimportantbenefitofanintegratedsystemisthatitenablestheplannertostaywithinthetarget

KPIsbyhandlingreal-timechangesmoreeffectively.Byintegratingtheplanningandexecutionfunctions

forvehiclerouting,companieswillbenefitfromacontinuousfeedbackloopthatenablestheplannertosee

theimpactofanydeviationsfromthecurrentplan,e.g.intheeventofadelayduetocongestion,thesystem

willdetermineiftheremainingdeliverieswillstillbeontimeandwhetherthedriverislikelytoexceedhis

maximumnumberofpermittedworkinghours.

Fleet management

However,anotherbenefitofintegratingplanningandexecutioncanbefoundinarecentdevelopment.

Beyondutilizingstatisticalcongestionpatterndata,planningsystemsarecurrentlyalsocapabletointegrate

real-timetrafficinformation,i.e.theimpactofadverseweatherontheroadnetwork;roadclosuresdueto

accidents;plannedroadworksetc.Withaccesstothiskindofreal-timeinformationtheplanningsystems

arecapabletocreatemoreoptimalroutesequences,startingtimes,andplansthatmirrorstherealitiesof

execution.

Fleet management - integrating planning and execution

Advantages: Continuous feedback loop, better handling of unforeseen changes

Lack of integration: Difficulty in managing KPIs effectively, inability to respond to last minute changes

3.6


Integrating customer inventory management and fleet management

Nowadays,therearedifferentopinionsregardingthebestwaytointegratecustomerinventorymanagement

andfleetmanagement.Somewouldarguethatthemosteffectivesolutionistohouseallfunctional

requirementswithinasingle(ERP)system.Butothersexpoundtheneedforarobust,bestofbreedsolution

thatmeetsthespecificrequirementsofthebusiness,whileofferingahighdegreeofuserflexibility;andone

thatshouldincludeoptimizationcapabilitiesandbeabletoprocessexecution-relateddata.Butonethingis

certain,theintegrationofcustomerinventorymanagementandfleetmanagementwillonlyworkifitisfully

cooperativewithERPsystem.

Supplier results

Wehavealreadycomeacrossthebenefitsofintegrationinprevioussectionsofthisdocument.Butto

reiterate,oneofthemostvaluableisworkloadbalancing.Basically,thisisallaboutmaximizingdelivery

efficiencybymeansofjust-in-timedeliveriesorpulleddeliveries.Bycreatingamoreevenlybalanced

workload,companiescanreducethenumberofspotcontracts(forvehiclesandresources)thatareneeded

tocoverpeaksindemand,whichimmediatelytranslatesintolowersupplycosts.Otherbenefitsinclude

improvedforecastaccuracyandimprovedcustomerservicelevels.

Customer results

Thecustomerisalsosettoreapnumeroustangiblebenefitstoo:reducedorderingcosts,increasedfillrates,

fewerstock-outsituations,andlowerinventorylevels,whichaltogetherleadstoimprovementsincustomer

loyalty.Bytakingcareoftheclientandsavingthemmoney,thesupplierbecomesmoreofastrategicpartner

in the client’s business and this is a unilateral goal.

Tangible results - case studies

US Petroleum distributor

This company implemented an integrated customer inventory planning and vehicle routing system with

thefollowingresults:a30%decreaseinthenumberofdeliveries;a39%increaseintheaveragedeliveryper

customer;a27%overallmileagereduction;and99.5%deliveryreliability.Thistranslatesintohigherlevels

ofcustomerservice,areductioninthenumberofvehiclesrequired,adecreaseinfuelconsumption,and

thereforelowercarbondioxideemissions.

European cylinder distributer

Thiscompanyimplementedforecastingandrouteoptimization,includingworkloadbalancing,butexcludingany

integrationwithexecution.Theywerestillabletoachievethefollowingresults,despitetheseasonalimpactofthe

LPGcylinderindustryandthelackofintegrationwithexecution:a7%decreaseinthenumberofdeliveriesand

routes;a6%increaseindeliveryvolumes;a10%reductioninplanningtime;a26%decreaseinkmdriven;anda

whopping43%riseintheaveragevolumeperkm.

Themainreasonthatthedistributerchosenottointegratewithexecutionwasduetothedifficultyof

trackingstockoncustomersites.Radiofrequencyidentification(RFID)couldbeapotentialsolutionto

4.

4.1

4.2

4.3


overcomethischallengebuttheactualimplementationcostswouldlimitthevalueofreducingthese

numbersanyfurther.However,inabulkenvironmenttelemetrydevicesarereadilyavailableandcanbe

implemented at a reasonable cost.

Other industries

Intheanimalfeedindustry,anumberofcompanieshaveimplementedintegratedsatellitemeasuringand

vehicleroutingandoptimization,usingthedatatofeedintotheproductionplanningsystemsattheirmills.

SimilartoLPG,thevendingmachineindustryisalsoimpactedbytemperaturefluctuations,e.g.inwarm

weather vending machine usage is higher, whereas home heating systems are used more during the cold

weather.Theseindustriescouldbothbenefitfromfocusingmoreonexecutionbymovingawayfromfixed

frequencydeliveries.

Andafinalexampleisthewasteindustrywherethereisagrowingtrendofprivatization.Inplaceoffixed

weeklyroundstocollectwastefromtheroadside,councilsnowemploycontractwastemanagement

providerstoemptyundergroundcontainerswhentheybecomefullofrubbish.Withthisnewtrend,waste

managementcompaniescanalsobenefitfromthesamesystemsthatusedintheOilandGasmarket,with

onlyafewchangesrequiredtoadaptvehiclecapacities.

What could be next?

Revenuemanagementisanothertechniquethatcanhelpcompaniestoincreaseprofitabilityandcreatea

strategic,competitiveadvantage.Itisusedbyanumberofsectorsbutperhapsthemostcommonisthe

airlineindustry,whereticketpricesvarydependingonclassoftravel(economy,business)andhowsoon

in advance the ticket is purchased, etc. This is a very dynamic pricing strategy that is wholly based on

forecastingdemand.

Asimilarapproachcouldalsobeusedinotherindustriestoinfluencethecustomer’spurchasingdecisions.

Takeforexamplelargesupermarketchainsandthewaytheyadvertiseandpricetheirhomedeliveryslots

accordingtodaysoftheweekandtimesofday(eveningordaytime).Othercompaniescouldadoptasimilar

approachfornon-VMIcustomersinordertoofferlastminutedeals,i.e.ifavehiclewillbeonroute,inthe

vicinity,withsparecapacity.Youcouldevengoastepfurtherandproactivelyapproachcustomerswithdeals

sothattheyplacetheirorderswhenitismoreconvenientforthesupplier.Thesearejustafewexamplesof

new techniques in business that could help companies to continue to innovate and achieve the results they

desire.

4.4


Changing the way you work

Why is there a need to change?

Despitetheobviousbenefitsofintegratingplanningandexecution,themajorityofbusinessesarestill

continuingtoworkintraditionalsilos.Companieswithastrongplanningculturearenottakingadvantageof

availablereal-timeinformationandoftenlackflexibilitywhenexecutingtheirplans.Conversely,companies

with excellent execution capabilities need a change in philosophy to integrate a process that is, at its core,

groundedinplanning,andforthistowork,theplanningroleneedstobecomemoreofadataanalystrole.

Effective change management

Iforganizationswanttoincreasetheirfinancialandoperationalperformancebyintegratingtheirprocesses,

theyneedtotackleallareasoftheirbusiness,whichmeans:themanagementandorganizationofthe

company,theemployeesanditsculture,productsandworkprocesses,andfinallyresources.

Resources and systems

Ifwebeginbylookingatresourcesandsystems,whichiswhatmostcompaniestendtofocuson,wewill

seethatitisimportanttobuildastrongfoundationwiththeappropriateITinfrastructureandtheright

softwaresolution(s).Thesystemthatischosenshouldprovideseamlessintegration,automatedforecasting

andplanning,transparency,insight,morecontrol,greaterefficiencyandareducednumberoferrors.But

systemsareonlypartoftheprocessandarenotsufficientontheirowntobringabouttherequiredchange.

Products and processes

Acompany’sproductsandprocessesmustalsobeexamined.Makesureallrelevantpartiesinthecustomer

supplychainareinvolvedindefiningthelogisticsprocesses.Assessthelevelofcustomersatisfactionby

engaging with the customers and any other relevant internal departments in order to build a true customer

partnership, where the right product is delivered at the right time, at a lower cost to both the customer and

thesupplier.Itisimportanttoprovideincentivesforthecustomertogoalongwiththechangeand,more

critically,forthesuppliertodeliveronthepromisedbenefits.

People and culture

Whenmanagingthechangeprocess,youshouldneverunderestimatetheimportanceofpeopleandculture.

Companyemployeeswillneedtoadapttheirwaysofworking,becauseultimately,itisallaboutdoingthings

differentlybyanalyzing,communicatingandincreasingknowledge.Inlogisticscompanies,thedispatchers

havebeendoingthejobformanyyearsandoftenstartedoutasdriversoradministrativestaff.Theypossess

awealthofvaluableinformationandarereallygoodatwhattheydo.Butinordertobringaboutthechange

your company desires, they need to take a step back and look at customer demand management and vehicle

routingfromanmoreanalyticalpointofview.Andtheyneedtodrivetheplanningsystemtocreateplansthat

automaticallyovercometheroutinganddeliverychallengesthattheytypicallyfaceonadaytodaybasis.And

indoingso,thisshouldresultingreatercustomerservice,higheremployeesatisfactionandreducedcosts.

Management and organization

Finally,managementcommitmentandsupportiskeytothesuccessofanychangeprogram,but

unfortunatelyitsimportanceisoftenunderestimated.Itmaywellbecitedaspartofthecriticalsuccess

5.

5.1

5.2

5.3

5.4

5.5

5.6


factorsbutasachangeactivity,itisalmostalwaysabsentfromtheprojectplan.Themanagementteam

needstounderstandthereasonforchange,howsuccesswillbedefinedandhowtheycancontribute.

Withouttheirbuy-inandsupport,itwillbevirtuallyimpossibletobringaboutchangeinthelowerechelonsof

theorganization-thatincludesthedrivers,thedispatchers,thecustomerserviceclerks,etc.Doallrelevant

partiesunderstandwhytheirprocessesarechangingandhowthisfitsintothebiggerpicture?Whatneedsto

happentoensurethateverysinglepersonintheorganizationiscommittedtochange,irrespectiveoftherole

they play?

ManagementmustanswerthesequestionsandthenimplementtherelevantKPIstoensurethattheyget

therightresults.Thereisnopointinjustfocusingontruckutilizationorontonsdeliveredperkmdriven,but

ratherfocusmustbegiventotheentirevaluechain,whichshouldincludecustomersatisfaction,number

ofstockouts,supplycostsetc.Andiftheygetthisright,theresultswillspeakforthemselves:increased

managementcontrol;increasedcustomerloyalty;andincreasedmargins.Pivotalelementshereareclear:

managementvision,continuouscommunicationandaneffectivechangemanagementprogram.


Conclusion

Bywayofconclusion,theprocessofswitchingtoanintegratedsystemforcustomerinventorymanagement

and vehicle routing is not without its challenges. However, by integrating these components into a multi-

user,multi-site,real-timeenvironment,companiescanrealizesubstantialbenefitsandcreateoptimalvalue.

Andatatimewhenorganizationsacrosstheglobeneedtocarefullymanagetheirexpensesandstrivefor

excellence,thisisaprojectwellworththeeffort.

6.


About the authors

MarnixduClouandIlonaScholteareGlobalIndustryLeadersOil,GasandChemicals.JannekeLagerwaard

isformerGlobalIndustryLeaderOil,GasChemicals.Theyallhaveextensivesupplychainknowledgeand

experience in the Oil, Gas and Chemicals industry.

About ORTECORTECisoneofthelargestprovidersofadvancedplanningandoptimizationsolutionsandservices.

Ourproductsandservicesfullyoptimizefleetroutinganddispatch,vehicleandpalletloading,workforce

scheduling,deliveryforecasting,logisticsnetworkplanning,andwarehousecontrol.Weofferstand-alone,

custom-madeandSAP®certifiedandembeddedsolutionsthataresupportedbystrategicpartnerships.

Our750employeessupportover1,800customersworldwidefromofficesinEurope,NorthAmerica,

SouthAmerica,andAsiaPacific.

ORTECworldwide

[email protected]

www.ortec.com

Want to learn more about our solutions? Contact us at:

Asia PacificAustraliaChinaSingapore

Western EuropeBelgiumFranceGermanyItalyNetherlandsUK

NordicsDenmark

Central and Eastern EuropeGreecePolandRomania

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