Impact

ISSN: 2058-802X (Print) 2058-8038 (Online) Journal homepage: https://www.tandfonline.com/loi/timp20

Llamasoft - Supply Chain by Design

Vicky Forman

To cite this article: Vicky Forman (2015) Llamasoft - Supply Chain by Design, Impact, 1:2, 34-38,
DOI: 10.1080/2058802X.2015.11963982

To link to this article: https://doi.org/10.1080/2058802X.2015.11963982

Published online: 29 Jan 2018.

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L L A M A S O F T – S U P P LY
C H A I N BY D E S I G N
VICKY FORMAN
34 IMPACT © THE OR SOCIETY
GLOBALLY, SUPPLY CHAINS
are becoming more and more complex as
procurement seek to find the new lowest
cost producer and sales and marketing
are always looking for the latest up and
coming market to sell in. This has led to
an increasing number of supply chains,
not just crossing country borders, but
now covering multiple continents. This
creates ever greater challenges for those of
us in the supply chain business: to make
sure these networks are fulfilling the
customer needs and are cost efficient.
Geographic spread is just one aspect
of supply chain complexity. Maybe
there has been a merger between two
companies and the new management
wish to rationalise the new combined
network to cut costs. Maybe a retailer
is looking at how to best utilise their
Image © LLamasoft
current distribution network with
a new online offering. Or maybe a
new product is being introduced and
management wish to understand in
which of their existing facilities the
new product should be produced to
minimise the cost of the introduction
and the overall impact on the network.
These are typical of the sort of
projects in which LLamasoft find
themselves involved.
WHO ARE LLAMASOFT?
It may come as a surprise, but LLamasoft
is not in the llama business! Nevertheless,
though we are a supply chain design firm
we still like to put pictures of llamas in
all of our presentations and articles.
Founded in 1998 in Ann Arbor,
Michigan, LLamasoft, Inc. provides
software and expertise to help
organisations design and improve
their supply chain network operations.
LLamasoft Supply Chain Guru® enables
companies to model, optimise and
simulate their supply chain operations,
leading to major improvements in
cost, service, sustainability, and risk
mitigation. LLamasoft is dedicated to
advancing technology focused on the
continuous improvement of enterprise
supply chains.
The main European office is just
outside Milton Keynes with smaller
offices in London and Paris and
some remote workers in Netherlands,
Luxembourg, and Germany. There is a
range of backgrounds in the European
team including 3rd Party Logistics,
academia, consulting, defence industry,
manufacturing and retail.
Optimisation is a great and
widely used tool by many
businesses with complex
supply chains to find the
most cost effective way of
operating
Globally, LLamasoft is a rapidly
growing company with offices on six
continents to serve the global supply
chain market across many different
sectors including retail, automobile,
food and beverage, chemicals,
consumer packaged goods, and
healthcare.
LLamasoft invests more than 30%
of annual revenue in research and has
a large dedicated development staff
of both software developers and O.R.
scientists. There is also a large team
of support and project consultants
that guides customers through model
building by ensuring the customer
gets the best possible product, the
best possible support, and is able to
successfully analyse the information to
correctly influence the decision making
process.
WHAT DOES
LLAMASOFT DO?
The flagship LLamasoft software is
Supply Chain Guru, which initially
included network optimisation
and simulation. Over the past few
years inventory and transportation
optimisation have been added as well.
Data Guru was introduced in 2013 to
aid with the process of data cleansing
and processing into a Supply Chain
Guru model, reducing the time from
data to model output and helping with
repeatable transparent data processing
and model building.
Customers of LLamasoft include
large multinational companies as well
as smaller companies. LLamasoft also
has a team dedicated to public health
solutions; working with World Health
Organisation (WHO), World Bank and
USAID among others.
There is no such thing as a typical
project in LLamasoft. Every customer is
different. Some customers might need
a week of training to get a team up to
speed on the software, others may need
several months working very closely
with the LLamasoft team to build a
model or suite of models that will go
into continued use, while still others may
only need help to build a one off model
to answer a specific business question.
AUSTRALIAN BEER
The most commonly used technique
in LLamasoft projects is Network
Optimisation. Optimisation is a
great and widely used tool by many
businesses with complex supply chains
to find the most cost effective way of
A variety of risks were
modelled, allowing the
impact of completely or
partially moving capacity
between facilities in the
event of extreme weather
and plant closures to be
evaluated
operating. Optimisation can be used to
answer questions such as:
• What’s the best location for
warehouses?
• Which warehouses should serve
which customers?
• From where should we source
products?
• Do we need extra manufacturing
capacity?
• How much inventory should we
hold, and where?
Another question that can be
answered using network optimisation is
how to best utilise a combined network
following mergers and acquisitions. A
major Australian brewer used Supply
Chain Guru specifically for this
purpose. They wished to evaluate the
production and distribution network
following a period of mergers and
acquisitions which had resulted in
an increase in volume and change
in product mix. They wanted to
explore the possibility of balancing
and redistributing the production and
packing capabilities within the current
network while keeping in mind the
potential impacts to the network of the
occasionally extreme Australian weather.
Network optimisation in Supply
Chain Guru was used to create a model
of their current optimized network and
then run scenarios. A variety of risks
were modelled, allowing the impact of
completely or partially moving capacity
between facilities in the event of
IMPACT|AUTUMN 2015 35

extreme weather and plant closures to
be evaluated. The scenarios examined
also allowed analysis of the impact of
demand and cost changes.
With the knowledge gained from
the Supply Chain Guru models they
were able to reconfigure their products
and distribution network to increase
efficiency and improve service levels.
Further projects focused on optimising
safety stock levels and minimising
stock outs.
USING OPTIMISATION
NOT TO OPTIMISE
It is quite common that high costs, low
service level and low vehicle utilisation
might not be the result of a sub-
optimal network design alone but other
factors such as lead time variability
need to be addressed before a network
redesign can take place. These were the
variables of a project carried out by the
public health team; working with the
Ministry of Health (MOH) in a West
36 IMPACT|AUTUMN 2015
African nation who are responsible for
the distribution of all medicines in the
country.
the Ministry of Health...
wished to evaluate whether
a decentralised network,
holding the stock closer to
the clinics, would increase
the service levels
Medicines were stored in a central
warehouse and then delivered by the
MOH to district pharmacies where
they were then collected by the local
clinics. The number of clinics had grown
significantly over recent years and the
network had not adapted accordingly,
leading to suboptimal results.
They wished to evaluate whether a
decentralised network, holding the stock
closer to the clinics, would increase
the service levels and where these new
stocking points should be.
Image © Alida Vanni/Thinkstock
LLamasoft worked with Supply
Chain Management System, a coalition
of 13 private sector, non-governmental
and faith-based organizations that help
organisations like MOH manage their
medical networks. A baseline model
was created before multiple scenarios
were used to determine the impact of
adding district hubs to the network.
Through these scenarios they were able
to identify the optimal decentralised
network.
They also found that, due to existing
supply chain issues, the level of stock
outs and poor service would continue in
the decentralised network if these were
not addressed first. These issues need
to be addressed and then the MOH
has the optimal locations for the three
district hubs that are needed in the
decentralised network.
In this case network optimisation
wasn’t just useful for identifying
the optimal network but also other
inefficiencies that needed to be
addressed.
IS OPTIMISATION ENOUGH?
Optimisation will provide the
mathematically optimal solution but
there is no such thing as a perfect supply
chain. A supply chain in which the
customer is perfectly predictable, the
transportation and production times are
not subject to delays and stoppages, and
the network is not subject to external
risks such as natural disasters and
political instability, doesn’t exist.
Optimisation manages to consider
so many possible solutions so quickly
because it simplifies reality into average
global flows – how much stock flows
over a quarter, a year, or several years.
It ignores some of the detail of day-to-
day operations – how much variation a
business can cope with, and the detailed
processes that make the business tick.
Image © LLamasoft
At LLamasoft we believe that
sometimes two is better than one and
simulation is a tool that can help an
organisation bridge the gap between
the mathematical optimum (network
optimisation) and the real world.
Simulation is still a simplification of
reality (the definition of a model), but
instead of aggregating demand and
production at a global level the inputs
are more granular, allowing for detail
to be at product or order line level
which results in much more detailed
outputs.
LLamasoft believe that
communicating the results
of the model effectively
is just as important as
building the model itself
One important distinction between
optimisation and simulation is that
they are prescriptive and descriptive
respectively; optimisation will tell you
what to do but simulation will not.
Once you have found the optimal
network configuration with optimisation
then you can use simulation to test how
it is likely to perform under different
scenarios, such as:
• Fluctuations in demand
• Natural disasters
• Industrial action
• New product introductions
One or more performance metrics
are commonly analysed to assess the
impact: measures such as customer
service level, inventory level and
vehicle utilisation. In many of these
scenarios it is not just one scenario but
a range, for example when looking at
demand fluctuations it is unlikely that
you would only test for a 15% increase
in demand: you would run a series of
scenarios from 5% to 25% increase
and analyse the range of results.
The process is also often an iterative
one, running both optimisation and
simulation several times with the
results of each informing the inputs of
the other.
OPTIMISE THEN SIMULATE
A global pharmaceutical manufacturer
had been using SAP APO for tactical
production planning, but this process
lacked capability for scenario analysis
on potential network and sourcing
configurations.
First, the company built a network
optimization model to analyse alternate
production plans under multiple
conditions, including demand growth
and contractions in various regions,
different pricing plans (profitability
analysis) and new suppliers for critical
raw materials. Simulation was used
to introduce business logic, lead time
variability, and demand variability
in order to quantify how susceptible
the “optimal” production plan was to
unexpected changes.
Simulation results showed the actual
predicted on-time rate for customer
orders, work centre utilisation including
changeovers and down time and lost
sales caused by raw material delays and
production plan deviations.
SIMULATION AS A
BUSINESS PLANNING TOOL
At LLamasoft we don’t only use
simulation for analysing the impact of
unforeseen events and variability but
also as a tool for testing the impact of
a proposed change in inventory levels,
production strategy, or location and
transportation frequency.
A European food and beverage
manufacturer wanted to understand
the impact on their customer service
level following a proposed move of
production facility for one product
category. They first created a baseline
service level on the current network
structure then ran several scenarios
varying the safety stock at the final
distribution centre with the new
distribution network. They aimed to
maintain the service level currently
achieved and understand how much
safety stock was now required to
compensate for the longer lead time
from the new production facility.
From this analysis they determined
that it was possible to move the
IMPACT|AUTUMN 2015 37
production without impacting the end
customer and with a minimal increase
in the required safety stock.
A MODEL IS NO GOOD IF
YOU CAN’T COMMUNICATE
THE RESULTS
Supply Chain Guru can create great
models that have the potential to inform
decisions and drive business change but
without effective communication of the
results to those making the decisions the
model won’t drive the intended business
change. At LLamasoft we believe that
communicating the results of the model
effectively is just as important as building
the model itself.
With most models the modeller
and the decision maker are presented
with a lot of information and complex
relationships between the many model
inputs. Optimisation reduces the
problem to a selection of mathematical
optima obtained via different user
defined scenarios and conditions.
This reduction of the problem makes
it more manageable to understand
and compare the outcomes to aid the
decision making process.
Optimisation is still a mathematical
model and as such is sometimes seen
as a black box. A simulation model is
descriptive and a much more transparent
model to analyse. The rules a simulation
uses are transparent and can be followed
logically and often include a lot of the
detail that the decision makers recognise
from the real networks. This makes the
communication and acceptance of the
model by the decision maker easier.
Whether the model is optimisation,
simulation or another technique, finding
the right method of communication is
very important; it needs to be tailored
to the audience. Do they like seeing
the numbers or do they want graphs
and tables? Do they want all the detail
or just a high level summary or maybe
just the headline savings number? These
are important questions to ask while
analysing the results. Getting the message
right can be the difference between a
successful model and an unsuccessful one.
WHAT DOES THE
FUTURE HOLD?
Companies across the globe will
continue to seek out savings and
efficiencies in their supply chains and
enter new sourcing and manufacturing
markets and need to adapt the supply
network accordingly. Computing power
continues to improve, leading to more
and more powerful machines that will
run the models quicker than ever. With
continued investment in research,
LLamasoft products will need to continue
to evolve by adding and extending
features to make the analysis and design
of supply chain networks easier.
Vicky Forman is a supply chain design
consultant with LLamasoft

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