Published on 30 Aug 2012
"Our ultimate goal was to create and maintain the most cost-efficient and flexible supply chain network possible, while continuing to ensure the same level of superior customer service … we have met our goal with our use of IBM ILOG LogicNet Plus XE." - Christoph Bauer, GBZV Strategic Sales Development, Südzucker AG Mannheim/Ochsenfurt
Südzucker is Europe’s leading supplier of sugar products and has an annual revenue of approximately €7 billion. The sugar segment of Südzucker operates 29 sugar factories and three refineries in 11 European countries and produces 5.4 million tons of sugar. The sugar is converted into more than 2,000 different products that are distributed to several thousand customers across Europe each year.
Südzucker needed to reorganize their supply chain to respond to major sugar market regulation changes. They also needed to add flexibility in this structure and the associated planning process to succeed in the sugar market going forward.
The company employed a solution based on IBM® ILOG® LogicNet Plus® XE to help meet their goals for a cost-effective, flexible supply chain.
The final solution helped Südzucker quickly estimate the effects of fluctuating costs and customer demand on the supply chain network, improve profitability with optimal network configuration and network utilization, and refine production and distribution planning to optimize the use of available capacity on an on-going basis.
When the European Union adopted a new market regulation for the sugar industry in 2006, Südzucker was forced to re-evaluate their entire supply chain network. On the one hand the company’s ability to export sugar to world markets became very limited, on the other hand major sugar deficit areas within the European Union were created. This led to a much greater focus on sales and distribution. Südzucker also knew this ruling would give them the ability to enter new sugar markets like Greece, Italy, Spain and the United Kingdom. Their challenge was to merge their national supply chain networks to create one integrated and powerful European supply chain network. The company had to determine how to modify their supply chain network by adding
new facilities to ensure excellent service but also minimize transportation costs.
Since Südzucker’s plants make multiple types of products on multiple production lines, the company’s challenge did not stop at distribution. “In addition to determining the optimal network for minimizing transportation costs to our new and existing markets, we also had to respect the restrictions of production capabilities and capacities at each existing manufacturing plant and warehouse facility,” said Christoph Bauer,
GBZV Strategic Sales Development for Südzucker. Südzucker’s production and distribution problem became even more complex based on the seasonality of harvesting and processing the perishable sugar beets during September through January. Südzucker had to determine the optimal production and distribution plan that minimized the cost of logistics and maximized the utilization of conversion and packaging facilities over the course of the entire year.
“In the past, the company had relied on a manual approach to supply chain planning, but we knew we needed a more organized, powerful and professional method for our design and optimization. Our goal was to create and maintain the most flexible, cost-efficient European supply chain network, while continuing to ensure the same level of superior service to our customers.”
Südzucker chose IBM ILOG LogicNet Plus XE solution, which is part of IBM’s Smarter Commerce supply chain solutions. The IBM ILOG LogicNet Plus XE solution helps organizations optimize their value chains using powerful modeling capabilities to determine the best supply chain options while ensuring the needs of the customer are at the center of their operations.
IBM ILOG LogicNet Plus XE helps Südzucker analyze the relationships among production, warehousing, transportation and service requirements. The company can then calculate and fully understand the trade-offs between different network configurations against cost and service objectives. All optimized models can be viewed, compared and exported to tables, graphics and the built-in configurable report writer for quick and easy professional presentation and in-depth analysis of all summary and detailed levels of the resultant optimal network structure and all activities within.
“This software is powerful, yet intuitive and easy to use,” Bauer said. “We are very pleased with the design and modeling capabilities available to us and have found an incredible increase in the transparency of our optimal production and distribution processes.” The company’s supply chain network optimization process begins each year during the sugar beet harvest when optimized amounts of refined sugar production is determined as available for conversion and packaging or distribution directly to industrial customers. This data is delivered by another highly customized production solution developed internally based on IBM ILOG’s CPLEX optimization engine, another solution within the IBM Smarter Commerce Portfolio. This input is
then combined with demand forecasts from their ERP system, capabilities per factory, capacities per product and all associated transportation costs to form the base IBM ILOG LogicNet Plus XE model of their supply chain.
Once the base model is created and completed annually, Bauer and his colleague Steffen Lukesch, Head of Business Process Development Sales, run ad hoc updates in response to major fluctuations in demand or transportation costs through the course of the year. Additional what-if scenario analysis is also performed to support one-off capital investment decisions. For example, LogicNet Plus XE helps them understand the impact of adding or removing assets anywhere across their current network. “We use the model for smaller projects too,” Bauer said. “If the company decides to add a production line, we run scenarios for different locations, look at logistical costs and recommend the best capacity and location for it.”
Transparency: Refine production and distribution planning
IBM ILOG LogicNet Plus XE provides Südzucker with full visibility into the relationship between production and the supply chain network. “Since we began using the software we have collected detailed information on the production capabilities of all of our plants, down to their production lines and product groups,” Lukesch said. “We have generated detailed distance and cost matrices between all of our plants, warehouses and customers. This gives us the ability to create and analyze multiple optimization scenarios in a very short time. With the built-in mapping and reporting functions we can clearly say, ‘Now we really know our network!’”
Flexibility: Estimate effects on supply chain network
With IBM ILOG LogicNet Plus XE, Südzucker can manage business growth and capital investments by determining where and when new facilities are needed. “Now that the model is established, we can answer questions that were difficult to answer before we implemented the solution, such as ‘Where should we increase or decrease warehouse space in Italy?’ or ‘Does it make sense from a logistics point of view to add or remove a production line in the north of France or in the south of Germany?’” Bauer said. “And, we can show the management team detailed graphics and reports that estimate the effects these changes will have on the entire supply chain.”
Savings: Improve profitability with optimal network configuration
Südzucker estimates an approximate 10% reduction in supply chain network costs as a result of the optimization provided by IBM ILOG LogicNet Plus XE. “We have met our goal of identifying the most cost-efficient supply chain network, thanks to this software,” Lukesch concluded.
IBM products and services that were used in this case study.
IBM ILOG LogicNet Plus XE
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