Material by Michael Watson, Sara Lewis, Jay Jayaraman, and Pete Cacioppi, 2012 NetworkDesignBook.com Chapter 9: JADE Intro Case

Material by Watson, Lewis, Jayaraman, and Cacioppi Material Needed Files needed: Zipped file called: JADE Intro Case.zip LNP XE Version is the latest If you click on the symbol in the upper left and click options, you can change the Excel settings

Material by Watson, Lewis, Jayaraman, and Cacioppi Opening the model Unzip the file contents into a new directory Open LogicNet Plus XE (LNP XE) Click on the Open link and go find the directory you just installed the files into Project should open

Material by Watson, Lewis, Jayaraman, and Cacioppi JADE Paint and Coverings Background– Corporate Background JADE Started Business in 1906 from the Nassau-Suffolk, NY area. They still have their main distribution center there (red triangle on the map) They originally started just making paint, but now sell specialty paints, wood treatments, ready-mixed concrete for patching, and other such products In their markets, they have a strong brands that command a premium and loyalty from the professional contractors Within the last ten years, through acquisitions and strong execution, they have broken in the West Coast and greater Texas markets  Although these new markets helped grow revenue, they were not good from a transportation point of view. A new DC was put up in Phoenix to help handle these markets  The last VP of the Supply Chain just left the firm and the new one is under intense pressures to take costs out of the supply chain. It is not clear the company can stay in business with its current supply chain

Material by Watson, Lewis, Jayaraman, and Cacioppi JADE’s Supply Chain JADE has kept its east coast DC in the Nassau-Suffolk, NY area– although the east coast market extends into Florida and the Midwest JADE sells four basic product families. Currently, each of the plants is set up to make just one of the product families. JADE has three plants in the US and one plant in China. All China product comes into the port at Long Beach. JADE’s manufacturing plants are known in the industry for their low cost and high quality  The plant in China was a bit of an experiment and the result of an acquisition. It is unusual for such a heavy product to be made so far away from its market. Competitors raised an eyebrow at this decision  Their plants and DC’s are set up to handle rail shipments, so the shipments from the plants to the warehouses are a mix of truck and rail

Material by Watson, Lewis, Jayaraman, and Cacioppi JADE Case Study Objectives Use LNP XE to help JADE reduce costs in their supply chain Learn how to use LNP XE Learn basic navigation Learn the core set of key files to get models up and running Learn how this model was built Learn how to run and analyze scenarios This model has some simplifications. Our primary objective, right now, is to learn LNP XE. We will add sophistication to the case as we progress through the exercises

Material by Watson, Lewis, Jayaraman, and Cacioppi Mapping JADE’s Supply Chain to LNP XE Manufacturers Assembly Plants Vendors Port of Entry End Customers Retailers Demand Points Product - Destinations Distribution Centers Plant Direct Shipment Cross Dock Facility Temporarily Leased Space LNP XE will minimize the cost to get product from the plants to the customers, considering all business rules and choices you give it.

Material by Watson, Lewis, Jayaraman, and Cacioppi When you are mapping a supply chain to LNP, you want to think about the following questions. Your answers to these will dictate how you set up the model, what data you will need to collect, and the type of results you’ll see What Costs do you want the model to consider when it runs?: Most times it is to minimize cost and occasionally to maximize profits You need to decide what costs to include What are your Business Rules, Constraints, or other Limits? When you minimize cost, a constraint is that you need to meet all demand You also define limits or constraints in terms of what can be made where, how much can be made at each location, warehouse capacity, rules on which customers can serve other What Choices or Decisions do you want the model consider? When the model runs, what choices do you want to give it. Can you make

Material by Watson, Lewis, Jayaraman, and Cacioppi Typical Methodology In the kickoff, you will spend time mapping your supply chain to LNP XE and determining data that is required In a typical project, your first model will be a baseline model. The baseline model is a model of your supply chain with last year’s data that has all the decisions fixed. This model is then used to compare against your financial records to make sure the model is running correctly. In addition to the baseline model, you will also want to run an optimized baseline model. This is how your supply chain should have performed given your current structure and rules. The difference in cost between the baseline and optimal baseline is from unavoidable problems or from execution issues. Often, you can find significant savings jus with this exercise It is always best to compare your scenarios to the optimal baseline to get a good sense of savings potential Kickoff & Data Collection Data Analysis & Validation Baseline Modeling Analyze Alternative Scenarios Final Summary and Recommendations

Material by Watson, Lewis, Jayaraman, and Cacioppi JADE’s Kick-Off Results: JADE’s team is going to start the optimal baseline What Costs do you want the model to consider when it runs?: We will consider the transportation costs from the plant to the warehouse and from the warehouse to the customer. For the imported product from China, we will only consider the cost from Long Beach to the warehouses For this initial model, we will not consider production costs, warehousing costs, inventory costs, etc. What are your Business Rules, Constraints, or other Limits? For the optimal baseline, we will not allow the plants to change, the plant’s mix of product to change, or the warehouse locations to change All product has to move from a plant to a warehouse and then to the customer. The customers require a mix of product and JADE is not set up for plant direct shipments All customers should get all products from a single warehouse What Choices or Decisions do you want the model consider? For the optimal baseline, we are allowing the model to determine which customer should be served from the two warehouses. As a side benefit, this will determine the total tons moving on each of the lanes

Material by Watson, Lewis, Jayaraman, and Cacioppi Here is a minimum set of files to build a model.* These are the core files you will need to get any model built. Within in the forms and with other forms, you can add as much sophistication as you like Sites & ProductsTransportation Plant ID WH ID Customer ID Production Info Product ID Demand Plant to WH Lanes WH to WH Lanes WH to Customer Lanes Carriers Plant to Plant Lanes WH to Plant Lanes * If you have plants shipping to customers, you can even get rid of the warehouses

Material by Watson, Lewis, Jayaraman, and Cacioppi Let’s See How JADE’s Data was loaded into LNP Open LNP XE To Open JADE Project Either click on “Open” in the middle right, click the Open Icon (the standard folder) in the upper left Go to the folder where you unzipped the file and click on the project.ilnp file To get to the input data, you need to either go to the ribbon at the top or the Navigation panel to the left. When you click on Data, you see the menu of data input elements. We will focus on the six major elements shown in the ribbon

Material by Watson, Lewis, Jayaraman, and Cacioppi Scenario Preferences Click Data Ribbon, go to Preferences and select Scenario Preferences For JADE, we are going to keep things simple and set up everything in terms of total tons. So, all units of measure will just be in tons

Material by Watson, Lewis, Jayaraman, and Cacioppi Products Click on Products in the Ribbon or Product Details in the Navigation panel Here are the four product families for JADE. Note that all products are active. Since we are only using tons for units of measure these fields are set to 1.00.

Material by Watson, Lewis, Jayaraman, and Cacioppi Customers Click on Customers in the Ribbon or Customer Details in the Navigation panel These are the market areas that JADE services Note that that we see a constraint here--- “Single Source” is checked for these customers. This ensures that all customers get all their product from a single warehouse

Material by Watson, Lewis, Jayaraman, and Cacioppi Demand In the Navigation panel, under Customers, click on Demand This shows the total demand for each of the four product families at each customer. This is JADE’s annual demand from last year

Material by Watson, Lewis, Jayaraman, and Cacioppi Demand– Some Facts If you click on the Graph Icon at the end of the row of Icons on the demand form, you can get some additional insight into the demand numbers. First, we’ll select “By Product” under the Pareto Chart Type. Next, we’ll come back and select “By Customer” and show the top 15 customers

Material by Watson, Lewis, Jayaraman, and Cacioppi This shows JADE’s breakdown in volume by product family. Click on “Graph Options” to go back and select another view

Material by Watson, Lewis, Jayaraman, and Cacioppi Here are the Top 15 Customers

Material by Watson, Lewis, Jayaraman, and Cacioppi Warehouses Click on Warehouses in the ribbon or Warehouse Details in the Navigation panel Under Warehouses Here is a list of the existing two warehouses, along with some others JADE wants to consider In the first model, they want the model to use only the two existing warehouses. So, you can see that no warehouse is active, except Phoenix and New York. Note that those are also set to “Fixed.” This tells the model that it has to have these warehouses in the solution.

Material by Watson, Lewis, Jayaraman, and Cacioppi Warehouse Capacity In the Warehouse Navigation Panel, click Warehouse Capacity By default, once a warehouse is set up, it has infinite capacity and no costs For JADE, we are not including these cost numbers in the initial analysis, so we can leave this as it is

Material by Watson, Lewis, Jayaraman, and Cacioppi Plants Click on Plants in the ribbon or Plants Details in the Navigation panel Under Plants We use the term “Plant” generically. It refers to the sources of products. So, the plants could be owned by the companies, could be suppliers, or in some cases (like for JADE), could represent the port of entry. Initially, JADE is not interested in changing plant locations. So, all four of these plants are fixed When you set up a Plant, you can specify its type as either “Supplier” or “Mfg Plant.” The distinction only determines how much detail you want to model inside the plant. Supplier type requires a lot fewer details. JADE was not interested in doing detailed plant modeling, so we set the type to “Supplier.”

Material by Watson, Lewis, Jayaraman, and Cacioppi Supply Details In the Plant’s Navigation Panel, go to Supply Details This form shows us the constraints on what can be made where. By setting up the max supply as greater than 0, it shows where a product can be made. A “0” indicates that this plant cannot make the product. Note that JADE is not yet modeling production costs.

Material by Watson, Lewis, Jayaraman, and Cacioppi We’ve now set up all the “Sites & Products” for JADE Sites & ProductsTransportation Plant ID WH ID Customer ID Production Info Product ID Demand Plant to WH Lanes WH to WH Lanes WH to Customer Lanes Carriers Plant to Plant Lanes WH to Plant Lanes * If you have plants shipping to customers, you can even get rid of the warehouses

Material by Watson, Lewis, Jayaraman, and Cacioppi Lane Visualization– Showing the Possible Paths Through the Supply Chain Click on Lanes in the Ribbon and then the In JADE’s case, we have a simple set up. All plants can ship to all warehouses. And, all warehouses can ship to all customers. If you do not see a lane type, that move is not possible. So, there are no lanes from plants to customers since JADE cannot do this Note that the groups “All Plants, All Warehouses, and All Customers” are default groups. When the model runs, LNP XE will automatically calculate the unique Origin/Destination pairs for individual sites. You can also create new groups to build new rules. In the details in the bottom right, you can see which carrier is assigned to each of the lanes.

Material by Watson, Lewis, Jayaraman, and Cacioppi Carriers--- Rate Structures Click on Data | Transportation | Carriers To start, JADE used high level estimates for their transportation costs. They used a cost of $0.07 per ton/mile for moves from plants to warehouses and $0.12 per ton/mile for moves from the warehouses to customers. Since some customers were very close to warehouses, they put in a min charge to capture the short move.

Material by Watson, Lewis, Jayaraman, and Cacioppi We’ve now have a complete model for JADE Sites & ProductsTransportation Plant ID WH ID Customer ID Production Info Product ID Demand Plant to WH Lanes WH to WH Lanes WH to Customer Lanes Carriers Plant to Plant Lanes WH to Plant Lanes * If you have plants shipping to customers, you can even get rid of the warehouses

Material by Watson, Lewis, Jayaraman, and Cacioppi Now, Let’s Run JADE’s Baseline Go to the Optimize Tab and click on Parameters Keep all the default settings Click “Run” on the bottom right

Material by Watson, Lewis, Jayaraman, and Cacioppi High-Level Analysis– Go to Solutions Ribbon and click Compare Solutions to see the total cost Go to the Navigation Panel and click on Customer Service, then by Distance, then by the 2 nd Tab

Material by Watson, Lewis, Jayaraman, and Cacioppi Summary Reports In the Solutions Ribbon, click on Summary Reports, 1 st tab This has some information you saw on the Comparison report It also provides the average distance for the different types of moves

Material by Watson, Lewis, Jayaraman, and Cacioppi Warehouse Summary Report Go over to the 2 nd Tab This shows the total tons (Throughput) going through each DC. New York handles about 2X the volume of Phoenix It also shows the weighted distance to the customer and the inbound and outbound transportation costs

Material by Watson, Lewis, Jayaraman, and Cacioppi Plant Details In the Solutions Ribbon, click on Plant Details This reports shows which plant made which product and how much it made

Material by Watson, Lewis, Jayaraman, and Cacioppi Transportation Reports Go to Solutions in the Navigation Panel and click on Transportation Report This report gives you detailed information for each of the individual lanes– (each line on the map).

Material by Watson, Lewis, Jayaraman, and Cacioppi Landed Cost Report Go to Solutions in the Navigation Panel and click on Trans | Standard Reports | Landed Cost Output This report shows the landed cost to get a product to a customer

Material by Watson, Lewis, Jayaraman, and Cacioppi Now, Let’s Try to Improve JADE’s Supply Chain: The most obvious question the new VP of Supply Raised was whether the 2 warehouses were in the right location and whether 2 was the right number. Here is how we now want to set up the model….  What Costs do you want the model to consider when it runs?: –We will consider the transportation costs from the plant to the warehouse and from the warehouse to the customer. For the imported product from China, we will only consider the cost from Long Beach to the warehouses –For this initial model, we will not consider production costs, warehousing costs, inventory costs, etc.  What are your Business Rules, Constraints, or other Limits? –For the optimal baseline, we will not allow the plants to change, the plant’s mix of product to change, or the warehouse locations to change (this last part is no longer true) –All product has to move from a plant to a warehouse and then to the customer. The customers require a mix of product and JADE is not set up for plant direct shipments –All customers should get all products from a single warehouse  What Choices or Decisions do you want the model consider? –For the optimal models, we are allowing the model to determine which customer should be served from the two warehouses. As a side benefit, this will determine the total tons moving on each of the lanes –We now want the model to determine the optimal two, three, four, and five warehouses

Material by Watson, Lewis, Jayaraman, and Cacioppi Running the Optimal Two Warehouses Right click on the scenario and create a copy of the scenario Right click on the copy and rename the scenario S2 Optimal 2 WH Right click on the new scenario and click “Set as Active” NOTE: It is important that you make sure the red checkmark is on the scenario you want to work on

Material by Watson, Lewis, Jayaraman, and Cacioppi Running the Optimal Two Warehouses: Giving the Model Warehouses to Choose From Go to Warehouses Remember, in the previous run, only the existing warehouses were active and set to fixed We now want to open up all 25 warehouses for consideration Click on the Excel Button in Warehouse Details Form (upper left, 3 rd button from the left). This will take this form out to Excel for editing Once in Excel, set the active column to TRUE for all 25 warehouses and copy the status of “Potential” over the two warehouses set to “Fixed.” Save and close the Excel file Back in LNP XE, click “OK” to accept your changes In the Warehouse form, we are now giving the model choices on warehouses REMEMBER: We already set up our transportation so that the model knows how to get from All Plants to All Warehouses and from All Warehouses to All Customers.

Material by Watson, Lewis, Jayaraman, and Cacioppi Running the Optimal Two Warehouses: Telling it to Pick Just Two In the Navigation Panel, go to Constraints, and Group Constraints Click on New and then name the constraint “WH Limit” have it apply to warehouses, and “All Warehouses” Then set a min and max of 2 warehouses Close this form and back on the Parameters form, hit “Run” Analyze the same set of reports we did previously to understand the solution

Material by Watson, Lewis, Jayaraman, and Cacioppi Optimal 2 DC’s In the customer service report, click on Advanced, and do a Side by Side comparison with the baseline

Material by Watson, Lewis, Jayaraman, and Cacioppi Questions on the Optimal 2 DC’s What is different between this scenario and the baseline scenario? How did the mix in volume change between the east and west DC change? How did the average distance change between the scenarios? What didn’t change between the scenarios? Where did the savings come from?

Material by Watson, Lewis, Jayaraman, and Cacioppi Running the Best 3, 4, and 5 DC’s Right click on scenario “S2” and make three copies. Make sure you copy this scenario and not the baseline Rename them: S3 Opt 3 WH S4 Opt 4 WH S5 Opt 5 WH In turn, do the following Set the scenario to active Go to Optimize | Parameters | Min/Max Group of Sites Change the Min/Max warehouses to 3 and 3, 4 and 4, and 5 and 5 (HINT– change the Max first) Don’t run yet. Once you made all the changes, don’t forget to hit Save Go to Optimize | Batch Run Select the three new scenarios and click to run the batch

Material by Watson, Lewis, Jayaraman, and Cacioppi A Side Analysis on the Optimal Two DC Solution Someone on the JADE team pointed out that in the 2 DC solution the move from New York to Columbus seemed much more significant than the one from Phoenix to Las Vegas. So, now the team wants to run another scenario with Phoenix instead of Las Vegas Make a copy of S2, rename the copy “S2a Columbus and Phoenix,” and make this new scenario active. Go to the Warehouse form For the Status of Phoenix and Columbus, set to Fixed Now, run this scenario Since this is a copy of S2, the model can only pick 2 location. Since we fixed both Phoenix and Columbus, those will be the 2 that the model chooses

Material by Watson, Lewis, Jayaraman, and Cacioppi Comparison of all the Solutions

Material by Watson, Lewis, Jayaraman, and Cacioppi Case Study Questions What new locations did the model pick as it from 2 to 5 optimal DC’s How much impact did the change from Phoenix to Las Vegas have? Why? What is the rate of change in the savings? In the 5 DC solution, even though the Columbus DC is very close to the plants, it still chooses to serve customers from the additional DC’s, why? In other words, why not save on inbound transportation and serve most customers from Columbus? Even though we don’t have the cost of opening a warehouse in the model, what information does the model give us in terms of what this cost needs to be for these solutions to be effective?

Material by Watson, Lewis, Jayaraman, and Cacioppi Independent Exercises What are the optimal 3 warehouses and cost if all product comes from China (enters in Long Beach)? Hint– to make all product in China, you want to go to the Supply Details and set the Max Supply to zero for all plants but the one for China. For this plant, make sure the max supply allows it to make all four products What would have been the cost if they moved all production to China, but kept the original 3 warehouses from scenario S3? What is the value if all plants could make all 4 products? How much better of a solution could you derive?