Stabilize Your Supply Chain

Optessa Founder and CEO Ashok Erramilli discusses the power of data-driven analytics and the importance of achieving balance and stability in production management.

Sarah Barnes Humphrey 0:01 So welcome to the show Ashok.

Dr. Ashok Erramilli 0:04 Thanks. So good to be here.

Sarah Barnes Humphrey 0:06 Yes, it’s always such a pleasure to work with you and the team. We just did a panel discussion a few weeks back. And I’ve really enjoyed learning about what you guys are doing at Optessa as far as manufacturing and supply chain. So let’s let the audience in on the best kept secret in manufacturing software, and I can’t wait. So let’s get started with the story. Tell us the story about behind Optessa, what was the challenge you were originally solving and how has the company evolved from there?

Dr. Ashok Erramilli 0:39 Yeah, so like, I guess many origin stories. It’s quite interesting. So as I mentioned to you, last chat, I was actually nowhere near manufacturing, or, you know, supply chain, when I started Optessa. The idea was really my partner’s, Mr. Vasu Netrakanti. Who was a serial entrepreneur and a visionary. And he had already started five successful companies in the space of manufacturing software. And he saw a need for innovative planning and scheduling solutions. Because on one side, he felt it was a very important niche, and that it was not being well served. He knew that over the years, working networks had assembled a toolkit of optimization methods that could be used to solve real world problems. So he contacted me and said, why don’t we start Optessa.

I knew very little at that point, about manufacturing, but between the two of us by mid 2002, we actually had a prototype that could do sequencing. And just when we’re wondering what to do with it, a major auto OEM had just opened an auto plant. In the US, and they were looking for a solution, so they were not bound by any past history.

Because there was not anything better, we threw our hat into the ring. What we didn’t realize was that many other companies also threw their hats in the ring, including many Fortune 500 companies. And there are five of us in total at that point. But I should say one good thing about auto OEMs is that they are quite open minded, they’re very data driven, and they tend to be very objective. So instead of throwing us out because we were small, they gave everyone their sequencing problems, their production data, and said, “What can you do this.” We came up with the best sequence, even with our prototype system. It was far better than anything the Fortune 500 companies had put together and we won the business. So that’s how we got started.

So how have we evolved? I think about how how much superior our product is now compared to what it was. It’s evolved so much. I am very proud of what we’ve been able to accomplish.

Over the years we’ve gone through many similar competitive evaluations, proofs of concepts, and we have delivered every time. With all our growth, I think I can say now that we are a world class company. But that scrappiness that was at the beginning is still very much a part of our DNA.

Sarah Barnes Humphrey 3:41 I love that story, by the way, because you saw the need, you built the prototype, and that’s kind of fate. They were looking for your solution, and then you went in there, and they decided that they would keep you on to see what you could do, and you rose up to the challenge, and that’s how the company was really built. And those are the kinds of stories that really build, you know, entrepreneurship and tech companies not only in supply chain, but really across the globe. And so you’ve been able to evolve that. And that’s always gonna be a part of your DNA. I mean, look at what you did with a prototype so I can only imagine what you’re doing now with a full scale platform. So let’s get into that what exactly do you do with your software?

Dr. Ashok Erramilli 4:34 You can answer that in various levels. But can we start with the ELI five type level where every business no matter what you do, every business has to solve the very basic problem, which is aligning demand and supply. So if you have too much supply or too little demand, you are going to lose money and you will be out of business.

If you have too little supply and too much demand, you’re losing business too. You’re not selling the way you should. So every company tries to have some match between supply and demand. And manufacturing companies are no different. But they have a particularly complicated problem. Because unlike many other businesses, their supply is highly constrained. They cannot make anything they want anytime they want wherever they want, because they’re limited by the capacity of their plants. They are limited by labor. They’re limited by the amount of materials they have. They have other supply chain limits to worry about. So there is a highly constrained problem. And that’s where we come in.

We essentially help manufacturers answer these three basic questions, which is, what do I make? Where do I make and when do I make? And we answer these questions, not by pulling some answers out of a hat. But with science, using optimization methods. So they can, in fact, do it in the most cost effective way, for example, the most efficient way or whatever the business objectives are. So that’s what we do. That’s what we help manufacturers to.

Sarah Barnes Humphrey 6:16 Good, I’m glad that you were able to break that down. Because I think it’s always important for everybody to really understand what you do as a company, because not only are you looking for manufacturers to work with, but you’re also looking to the community to let them know what is out there, what they can be doing. And when they’re working with a manufacturer, what is it that they can be doing better to help them in their business. Because collaboration is the future of business. And we’re all going to be working together for that common goal.

So let’s talk about the discussions leaders are having at the business and supply chain levels about what to do with their manufacturing. I mean, we did talk about this on the panel discussion a few weeks ago. I think that it’s a really big topic of conversation. People are talking about nearshoring, offshoring, glocalization, which was a new word that I learned just a few weeks ago. So what are the scenarios that your customers are considering right now?

Dr. Ashok Erramilli 7:18 Of course, right now, I won’t just say the white elephant in the room, but the blue whale in the room is the whole pandemic. And everything has to start and the scenarios have to start there. And actually, you heard all of these. Sarah is a V shaped or a U shape or a W shaped or L shaped, and it’s really mind boggling the set of different scenarios. I like to answer the New York Times gave the best, which is that the only shape you can assign to the current mess, is a question mark.

Nobody really knows if it’s a V shape a U shape or whatever. And essentially what they are telling us is to be prepared for all of the above, which is really challenging. In some sense all business have to prepare for these. And what makes it very challenging, as I mentioned before is unlike past crises, where let’s say you had a hit on the demand side or you had a hit on the supply side. This is the strange situations where there are vast uncertainties both on the demand side and supply side. And then you have to plan for all of these, you know, given all these shapes. So I think every company is struggling to cope with these issues. And that’s where we are.

Sarah Barnes Humphrey 8:53 I think people are looking at technology from a distribution standpoint. I think they’re considering different things. So they’re considering not only diversifying their supplier base, their manufacturers, and where they’re located. They’re also considering supporting their business in local markets in that local market, rather than supporting it from a global manufacturing perspective. These are all, really big questions. I really liked what you said. It’s a huge question mark right now, and I’m sure some of the conversations that you’re having with your customers are a little bit all over the place. And they’re kind of like, well, what about this scenario? What about that scenario? So what are the three major factors that companies need to consider in these discussions and why?

Dr. Ashok Erramilli 9:50 I think historically, up to this point, in a way the modern supply chains that people have built up are a thing to marvel at. They’ve been built with primarily one cost or one criteria, which is cost, and the cost to the exclusion of everything else. It’s worked remarkably well given that, but as you can see, it’s exposed us to all kinds of instabilities. So I think they will not need to think or evaluate the supply chain or the plans in the context of criteria other than just cost. And, of course, a big factor is risk. You can have the most efficient supply chain, but when you have a disruption like this, that could be the end of your business. So, you do need to consider risks, certainly as one of the major factors.

The second factor, I guess, would also have to do with flexibility. Now we have to get into a world where disruptions seen once in a century seem to be occurring every 10 years. Black Swan events are pretty common, I would say. Even minor, smaller scale disruptions, like the changing climate are becoming more serious. So one thing is flexibility. The second factor I would consider is how quickly you can respond to disruptions. How quickly can I adjust to hits to my supply chain. And that’s where we get into diversification and maybe glocalization, the word that we used, and other strategies. So flexibility is the second term.

The third term, which is not that talked about as much but is also very important is stability. Stability of the supply chain. When you have disruptions, what you don’t want to do is to cease operations. In particular, more disruption should not cause you to shut down your plants on Sunday. That’s an unstable supply chain. So they also need to consider, “How do I make my supply chains more stable” given all the uncertainties that are going on? So those are the big factors, outcomes, risk, flexibility and stability.

Sarah Barnes Humphrey 12:12 I think you hit it on the nail with the flexibility. And I think what people don’t quite realized, and correct me if I’m wrong, but data is really going to play a huge role with that, right? Because we’re going to be able to with the data, be able to use some predictive analytics to help us be flexible. So it’s not just about flexibility and just figuring out how to be flexible. It’s about utilizing the technology and the data to help us do that.

Dr. Ashok Erramilli 12:39 Right, exactly. In fact, the two aspects to it. One is the availability of data. I think people are finding surprisingly that there are vulnerabilities in the supply chain they didn’t know about. The visibility to the supply chain extended to let’s say, one or two tiers down, but deeper levels below that is a very critical part of supply that, in fact, is quite vulnerable. And if something happens to that, you know, seven levels / five levels up you will see a consequence.

So I think getting data and getting visibility and is going to be big. But just getting data by itself is no use. You have to do something with the data. And that is the second part. That is where predictive analytics, like the stuff that we do, I think is essential. So you need both. You need you need data and you need the analytics to come up with actionable outcomes so they can do something.

Sarah Barnes Humphrey 13:51 In our panel discussion, Michael A Struble asked, “How do you manage the local versus international supply chain challenge?” You know, I’m thinking about how you decide what the acceptable trade offs are using a local supply compared to an international offshore supply chain. And again, we’re still talking about those questions and things to be considered because these are the discussions that are being had in boardrooms everywhere. And I think really Optessa is, from a manufacturing standpoint, the one to be able to sit down with your customer and really help them look into the future, and what that looks like for their supply chains and how they can really juggle this.

Dr. Ashok Erramilli 14:39 Right. And I think the key word that you mentioned, is trade offs. How do you reconcile this. Earlier we talked about cost and risk and flexibility and stability, and sometimes all of these are counter to each other. The lowest cost could be the riskiest. So how do you do these trade offs and interestingly enough that the science of trade offs is optimization. That is what optimization does. All it does is achieve the right balance for you. That is what the whole science and mathematics of optimization is, which is, of course in the name of our company.

Most people can deal with one objective or maybe two objectives. But when you start piling on objectives, and you have a very high dimension set of objectives, tied to balance 4 5 6 7 factors, it’s impossible for any human being to do this. That’s where optimization tools like ours come in. What we do is we encode or we’re able to model all the different aspects of your operation in a realistic manner. And then, we’ll tell you, given your comfort level and your priorities, the best trade off that will achieve what you’re looking for.

There’s no one universal answer for everybody just like, you know, investment. Everyone has their own risk reward profile they are comfortable with. Likewise here, I can understand every company meeting, evolve their own pain of the day comfortable with the issue insurers have trouble with their stakeholders are comfortable with. And that’s what we help them do. Tools like ours, in fact help by balancing these various trade offs, and then come up with the best solution that’s right for you.

Sarah Barnes Humphrey 16:37 Yeah, and you’re right, because I think with every business is going to be different. Every business in different markets, they’re successful in different markets and what that looks like is really going to determine how they can move forward. I mean, we all have to take in consideration landed costs, right so if you move your manufacturing from China to Vietnam, and you’re in the States or you’re in Canada, and your landed costs are potentially going to change depending on the free trade agreements or not that we have with Vietnam, or what those duty rates are on your particular product, etc, etc. So there’s just there’s so much to be considered. But it’s nice to know that Optessa has the software to be able to put the data in and come up with the different scenarios to give them the solution and what that’s going to mean for their business. Right. And you brought up a good point you were talking about the name, how did you come up with the name of Optessa?

Dr. Ashok Erramilli 17:36 Okay, it came down to my co-founder Vasu. So our original name was actually NetAps. The first three letters of his name was NET and APS is what we do. We thought that was a nice name, and we will also, software as a service on the network. But it turned out there’s another company with a very similar name NetApps with two “p”s. So we were certainly getting all kind of inquiries about databases and whether we could supply databases and storage area networks. And we suspected they were getting calls for APS software. So we didn’t think that was a good situation. So that my partner, he wanted something which said optimization. And he wanted to have say something with said, scheduling and sequencing applications. He kind of put it together and came up with Optessa. So that’s where we are.

Sarah Barnes Humphrey 18:33 I love it. I love it.

Dr. Ashok Erramilli 18:34 Yeah. So yeah, it captures. It does exactly what we do and who we are and how we do it.

Sarah Barnes Humphrey 18:42 Yeah, no, it absolutely does. So just recently on July 1, the USMCA came into play. It’s not something that we talked about on the panel discussion, it was something that kind of came in that everybody wasn’t really thinking about because of what’s been happening with COVID and the pandemic and things like that. I want to ask you, you know, what effect will the USMCA have on local manufacturing versus offshore when we’re talking about these different scenarios?

Dr. Ashok Erramilli 19:13 Right. So one thing of course, it’s good, that there is a USMCA or some equivalent like that, right? I mean, it’s good, because all the years between NAFTA and so on, for example, auto industries become highly integrated across North America. And if that agreement had not been in place, it could have been quite disruptive, taking a while to catch up. So from what my understanding of USMCA is that in effect that they kind of redefined what local means. So in a way so by local we are now without referring to all of North America, because the governing region is not America. And there are certain provisions which sit now are interesting, like they’ve increased the percentage of North American content from 62.5% to 75%. So you’d think that we’d see more of the manufacturing be local to North America. That’s the thing.

And then there is also of course, environmental protections, but there are also rules regarding wages and the content of a car tied to that. So that could also be quite salutary. I think it could both keep more jobs in the US and also maybe raise wages and environmental standards elsewhere. So I think, from what I’ve seen, most people are generally pleased with the USMCA, both business groups and labor groups and President Trump and Speaker Pelosi. So given all of that, it’s a good thing. Now in terms of actual impact on how much manufacturing would move to the US, for example, and how many more jobs you could create the US government statistics themselves are not, you know, they’re literally on the coattails of cautious maybe, because they’re talking about 176,000 jobs over six years. Now, that’s the number of jobs we create every month, in normal times that is. And so I don’t know, the impact, in terms of moving a lot of manufacturing is going to be that significant. But we’ll have to wait and see how things turn out.

Sarah Barnes Humphrey 21:25 Yeah, and it’s gonna take a little time, right? I mean, as businesses and organizations try to figure out where their supply chains are gonna lie, and what that looks like, it’s not gonna be an overnight. So we’ve, yeah, so we’ve talked a lot about what you do at Optessa, and you know a lot about the manufacturing and the different discussions that are happening. But I want to know, paint us a picture and give us a real life example of how your software has helped one of your customers. So when they came to you, I mean, you told us in the beginning, you know that OEM. But you have to have another one, you know, what was their challenge? What come to you with? What was the solution you provided? And what was the benefit? Maybe in time or money?

Dr. Ashok Erramilli 22:11 Of course, there’s so many examples now, you know, so it’s like, I’d like to go through a list. And if I get, how much time do you have? I can keep you all up. But I’m focused on one thing because it’s rather unique, it showcases a rather unique capability that we have. So one of the problems that we solve is material, supply chain stability or material stability, as it’s called. And this is a problem that has bedeviled supply chains for a while, which is that let’s say a top level manufacturer, a top tier manufacturer, makes a plan or a schedule that can then be shared with their suppliers who share with their suppliers and all the way down the supply chain.

But you know, in the real world, the moment you make a plan, things change. I mean, that’s my life, story of my life, but also a story of many companies lives, which is that they need to constantly replan and reschedule. And when you do that, you know, small changes at a top tier manufacturer, get amplified as you go down the supply chain, and their suppliers see a bigger, you know, oscillation, and then downline. It’s like the bullwhip, right, you kind of crack the whip on one side. And the tip is moving all over the place, which is the fate of low tier suppliers, you know, they are constantly dealing with massive changes in what they ever delivered when they have to deliver. And so that and these kind of instabilities do add a lot of cost to supply chain, but there’s no rocket science here your massive inventories, to cope with these kind of fluctuations.

So what we did was now what unique capability that we have, is that when you need to replan, we can take into account the changes that are stated replan while minimizing changes to the existing plan. So, an example was this company had to take 9000 orders they need to deliver in a given time period and then things changed. Then they found out the legacy system that they had 1200 change points. They had twelve hundred places where they modified the schedule and told the suppliers.

We took the same data set and we regenerated the schedule where there are only 300 change points, we reduced the number of chain points from 1200 to 300. The company then did the evaluation and said “How much does this save us?” And they found out that the saving just from this kind of enhancement was enough to not only pay for our software but to pay for an entire order fulfillment software suite. So that’s the scale of benefits you can get by stabilizing your supply chain. And this is something that we were able to show and it’s a very unique capability of the system, that we’re able to preserve this kind of stability. So that was a big win for us. Yeah.

Sarah Barnes Humphrey 25:19 Yeah, that sounds like you’re you’re also customizing to the challenge that they have at the time.

Dr. Ashok Erramilli 25:26 It’s not customized in the sense that we don’t have to develop new software. What we do instead at our core is an optimization technology, which is highly, very generic and parametric. And what we are telling the optimization system or system is that this is the pain of the industry. They want to stabilize the supply chain, and that gets expressed as some kind of constraint that our system tries to solve. And you can have a different constraint. For example, you might want to maximize throughput, you might want to maximize on time delivery. Any kind of objective, all that is completely parametric in our system, you don’t have to do any custom coding, you can just express that as another constraint that the system understands. And you go ahead and do it. It’s like, yeah, so I think it’s very flexible in that way. And you can support a variety of business objectives. And this is one thing I’m pleased about, because I think almost no one that I’m aware of, has this capability of, you know, this kind of maintaining bias or maintain stability in your supply chain.

Sarah Barnes Humphrey 26:34 I really like that. No, I was just taking notes from what you were talking about, because I like the word stabilized. I don’t think we’re hearing that enough. In supply chain content, right? We’re hearing resiliency, we’re hearing agility but I really like that word stabilize. So as a supply chain professional, what questions am I asking myself when I should be considering picking up the phone and calling up Optessa? Like who is your ideal client?

Dr. Ashok Erramilli 27:01 Okay, so one thing, the first thing I can give you a series of questions. One question is they ask themselves, do I have a state of the art APS system? If the answer is no, for example, if they’re still doing the planning and scheduling using spreadsheets, then please call us and we’ll show you a number of ways that we can save you money.

Another question is, am I meeting all my manufacturing and supply chain KPIs? For example, am I maintaining my throughputs? Am I maintaining on time delivery? Again, if the answer is no. Please call us. Because there are again countless use cases where we have helped customers improve on time delivery, we have increased throughputs, all without any additional capital expenditures, just using software and being smarter, cleverer in planning and scheduling. So that the second case please call us if you’re not meeting your manufacturing KPIs.

Third thing is, ask yourself, do I have the flexibility to handle disruptions in my supply chain? Very often, the planning and scheduling cycles take so long that they’re not able to react. And if you’re not able to react, please call us because we’re able to quickly plan and replan, repschedule in the time it takes to react to these disruptions and changes.

The fourth thing I would say is if you are planning your digitalization transformation, if you’re going getting towards industry 4.0, and your intelligent supply chain of the future, and if planning and scheduling is not part of your plans, then do call us because we think that planning and scheduling or the next generation planning and scheduling is the pillar of Industry 4.0 and unless you have it in your plans, you’re not going to realize the benefits of digitalization or any of your digitalization initiatives. So, any other reasons, but if you’re not sure about what planning and scheduling can do for you, please call us and again, you know, we would help them out.

Now in terms of who an ideal customer would be like any, like sophisticated, you know, analytic based tool, we need data, right without this is belongs to a class of systems known as GI GO or garbage in garbage out. You do need good quality data and sorted data in huge volumes. But there is certain critical data that you need to feed our system. For example of what’s obviously we need to know what your demands are. You need to know what your capacities are. And you need to be able to characterize your manufacturing environment that you know where your constraints are. If you had these things that is sufficient for us to set up.

On the output side we can generate the best plans and schedules. An ideal customer will be able to execute them, that they can take our plans and schedules and actually follow them. If they can do that, then I think it’ll be a win win. Yeah.

Sarah Barnes Humphrey 30:11 Sure. Sorry, particular industry that you’re focused on, that should be calling you.

Dr. Ashok Erramilli 30:17 You know, actually, so I have this notion of three Vs, which I think one thing is volume in any industry that that deals volume. Secondly, any industry that deals with variety. And so that would be … the third thing is value, the items that you make have value. So if any of these three are true, then definitely we can help you. And yeah, on top of volume right I mean, of course, you can make a high volume of paperclips for example, which is very good, honorable business without, but you may not get the value out of our system. But if you look at aerospace, if you look at automotive, if you look at heavy equipment, if you look at semiconductors, you know, industry after industry, they’re characterized by these three V’s volume, variety, and value. And I think we can deliver significant savings and benefits to companies with these characteristics.

Sarah Barnes Humphrey 31:17 Perfect, and that aligns with your core values, right? Your core values are those three V’s. And if they’re aligned with those as well then they know that you’re, you’re the partner for them. So I want to talk about the future of the company. What’s next for Optessa?

Dr. Ashok Erramilli 31:32 So in fact, I was just riffing a bit on the Industry 4.0. And, you know, so I’m as excited as the next company, I guess in terms of the potential for this on I would not say it’s the next Industrial Revolution. It’s an ongoing Industrial Revolution. And if you think about how 10 different technologies have come together to make this opportunity, and I think we live in very exciting times, and I see this even in the pandemic times as they are, in a way that opportunity, and I think you will see an acceleration towards greater automation and greater incorporation of these tools.

And so we are up there, you know, we are investing heavily in R&D, coupled with the next generation of planning and scheduling systems that can operate autonomously by incorporating in addition to all our AI and optimization techniques you already have to incorporating all ability to handle large data, cloud computing. And we really are very excited with the product called Planning and Scheduling 4.0 is really going to enabled Industry 4.0 and that I think is going to be our future. And we are increasingly going to get away from say enterprise offline systems to inplant execution systems. And we’re going to bridge that gap. And then I think you’re going to see huge jumps in efficiencies and value in people’s supply chains.

Sarah Barnes Humphrey 33:01 Yeah, and I’m excited to see what happens next for Optessa and what you guys are planning to do. I mean this Industry 4.0 and really getting involved with that is going to take us to the next level in supply chain. So glocalization I have been told is not a new term, but for the future of supply chains. As leaders navigate through the options and change their business models, it could mean that instead of manufacturing supporting a global supply chain, it could mean that several manufacturing locations will serve local markets and you will need technology and a team behind it to help you navigate the options and help manage the flow.

Optessa, can definitely be your partner in that journey. So for more information about this episode, Ashok, and Optessa, please visit their website at Optessa.com. You can also visit LetsTalkSupplyChain.com. Under podcast, this is going to be Episode 129. Thank you to John and the team at Optessa for helping to make this episode happen and to Ashok for coming on the show today and sharing all of your insights with us.

Dr. Ashok Erramilli 34:20 Thank you, Sara. Thank you for having me. It’s a real pleasure.

Operations Management Principles