Cement Americas provides comprehensive coverage of the North and South American cement markets from raw material extraction to delivery and tranportation to end user.
Issue link: https://cement.epubxp.com/i/636168
10 CEMENT AMERICAS • Winter 2016 • www.cementamericas.com FEATURE Deciding how best to use limited resources is a univer- sal issue that spares no individual or business. In to- day's competitive quarter-to-quarter environment, it's critically important to your business's proftability (and longevity) that its people and assets are used most ef- fciently. While this is an obvious truism, it is not always obvious how to go about doing this – especially when dealing with complicated networks. The companies going from "good" to "great" arrive at the right answers when it comes to making business decisions on product mix, logistical routing and de- mand planning through a process commonly known as linear programming (tabbed "linear" because the max- imized or minimized answers are assumed to be linear in nature.) This mathematical exercise squeezes proftability to the closest dollar while considering constraints of the business – limitations such as radius of delivery, feet size, manufacturing capacity, amount of material, lead times, space, etc. When done correctly, the business can rest easy knowing there is not signifcant value be- ing left on the table. However, many companies shy away from the tech- nology because they just don't understand it. The purpose of this article is to demystify the complexity behind optimization by illustrating how it works in a case study context. THE SITUATION The North American division was becoming progressively more capacity constrained due to bottlenecks in its dis- tribution network, while product demand in key region- al markets was growing in disproportion to the regional plant's ability to supply. The CEO made it a key priority to address this in order to increase proftability. Howev- er, due to the complexity of the distribution network and trade-offs between economic drivers, it was not a simple "back-of-the-envelope" exercise to quantify the opportu- nity and other costs of these bottlenecks. Assessing the overall impact of potential options was also very diffcult. In response, a project team composed of internal and external supply chain professionals used a framework to help the company's executives refne the strategies for upcoming growth without hurting current customer obligations. The project's objectives were threefold: 1. Identify and value strategic network opportunities. 2. Maximize operational profts. 3. Provide visibility on future month-by month system constraints (ex: material shortages, rail car availability, silo capacity). The results of the project were phenomenal. The team confdently recommended: • A rebalancing of product to 25 markets (without sac- rificing sales) in order to ensure greatest overall profit margin. • Tactical distribution moves to save over 5 percent in freight and other variable costs. • Payback analysis on the exact benefits of resolving the top network constraints. • A forecasting tool to measure profitability and net- work impact of future greenfield locations. Network optimization is commonplace in most logis- tics-based industries and is not inherently diffcult to execute, provided some basic understandings of the fundamentals are in place. With any optimization exer- cise, there are three parts: Inputs, the Process and the Output (Exhibit 1). In this case the company wanted the output to refect maximized profts (not necessarily just minimized costs.) Demystifying Linear Optimization With The Help Of Linear Optimization, A Cement Manufacturer Maximizes Proft Margins While Seeding Future Growth Opportunities. By Ryan Brown