i2 Technologies Inc.Irving, Tex.

Dec. 21, 2004
Rhythm profit optimization system
Doug Bartholomew, Samuel Greengard, Glenn Hasek, John Jesitus, Scott Leibs, Kristin Ohlson, Robert Patton, Barb Schmitz, Tim Stevens, and John Teresko contributed to this article. The goal of most planners is to make sure production and materials supplies fit the forecasts of marketing and mesh with manufacturing and distribution. Unfortunately, that view sometimes is a bit shortsighted, given manufacturers' overall goal of maximizing profits. Often the dislocation is in the unforeseen problems that occur in the supply chain. "The most important thing we are doing is helping manufacturers to more intelligently maximize supply and demand," says i2 Technologies Chairman Sanjiv Sidhu. In October i2 introduced a profit-optimization system aimed at asset-intensive manufacturers that need help in figuring out production plans to maximize profits. "If demand comes out to be greater than supply, how can the company allocate that supply to the most strategic customers?" Sidhu asks. "Our system continuously monitors supply and suggests pricing capabilities in different [distribution] channels." Rhythm profit optimization enables master planners to simulate supply-chain costs and revenues from a point of view that takes into account materials, operations, inventory, and revenue. Initially available to asset-intensive industries such as steel or textiles, it can be used to maximize margins by allowing the user to find the optimal mix of products, transportation, sourcing, and build-ahead tradeoffs. Profit maximization systems for other industries are being developed. Planners can use the software to assess the financial impact of adding new capacity, increased demand, lower minimum requirements for demand fulfillment, and decreased inventory levels. They also can examine the impact of strategic issues, such as outsourcing, the best way to utilize assets, and whether large seasonal build and consequent inventory-carrying costs are justified to meet peak demand. Finally, even the effect of high overtime levels can be examined for impact on profits. The company is creating industry-specific templates for what it calls market-intensive industries, including metals, paper, pharmaceuticals, and textiles. A further differentiation is available between scheduling systems for companies that operate in a constrained-supply -- meaning there are limitations on the availability of various materials -- versus an unconstrained-supply environment. i2's Rhythm system is especially useful for planners trying to figure long-range production needs. Users can simulate the effect not only of seasonal demand, but also new orders, equipment problems, and other changes on the supply chain and on production schedules. "The ability to forecast is going to become increasingly difficult, because the marketplace is changing so rapidly," says i2 senior partner Ken Sharma. Some companies, such as 3M Co., are using Rhythm to replace the all-important planning component of their manufacturing-resource-planning system. Some blue-chip customers include Texas Instruments Inc., Herman Miller Inc., Thomson Consumer Electronics, Solectron Corp., and Ford Motor Co. A leader in the advanced scheduling market, which includes numerous other competitors such as Manugistics Inc., i2 reported record revenues and profits in its latest quarter. One downside for the company, experts say, is that it recently saw an agreement with enterprise-resource-planning (ERP) systems giant SAP AG unravel. SAP had originally planned to embed i2's Rhythm into its R/3 system, but in September reversed its position, deciding instead to develop its own advanced scheduling capability. i2 has since struck a deal with Oracle Corp. to provide tight integration of Rhythm with Oracle's ERP systems.

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