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New Pittsburgh: Well-funded SmartOps helping firms with supply chain management
Thursday, August 28, 2003

A 900-page book titled "Quantitative Models for Supply Chain Management" is never going to be a best seller. In fact, it recently ranked 155,508th on online bookseller Amazon.com's list of books sold.

 
 
Doreena Balestreire/Post-Gazette
SmartOps Corp. executives, from left, Martin Barkman, A.J. Brohinsky, Sridhar Tayur and Cliff Isaacson. Founded in 2000, SmartOps Corp. has raised $18 million-plus in venture capital, employs more than 40 people and claims to have worked for a number of clients that signed $1 million-plus contracts.

The $250 academic treatise may be impressive, but it won't give companies what they really want -- a system that can tell them where to send the blue polo shirts, where to load up on pink ones, how many green jackets will customers in Peoria buy next March and what's the optimal way to get those items from here to there.

So Sridhar Tayur, the Carnegie Mellon University professor of operations and manufacturing who helped edit the hefty supply chain management book, has formed a North Shore company that takes the fancy mathematical equations and tucks them inside software to help customers figure it all out.

Founded in 2000, SmartOps Corp. has raised $18 million-plus in venture capital, employs more than 40 people and claims to have worked for a number of clients that signed $1 million-plus contracts.

Just this summer, New England grocer Shaw's Supermarkets bought SmartOps software to help forecast where and when it should put out extra potato chips and dip as well as how best to get them to the right stores.

This isn't quite where Tayur expected to be a decade ago when he first arrived at CMU. For several years, he concentrated on teaching and doing research into using algorithms to determine the influence of various, diverse factors on the supply chain. Everything from how fast trains move to the cost of buying gas to unexpected blackouts can affect manufacturers. The idea was to develop equations that would offer a better idea of the best risks to take.

In the mid-1990s, clients such as Intel, Caterpillar Inc. and General Electric began calling to get his input. "I became curious as to why people were finding me and asking me to do this," said Tayur.

 
 
 
At a glance

Company name: SmartOps Corp.

Business: Develops software that helps companies improve their supply chain planning and management.

Headquarters: Pittsburgh

History: Founded in 2000 by a Carnegie Mellon University professor, the company has raised money through venture capitalists and began introducing its first software products in 2002.

Employees: 42

 
 
 

What he discovered was that technology had improved the quantity and quality of information that companies had about their own internal processes, but that it was difficult to sort through. "The other thing I found was that nobody had created a package solution," Tayur said.

He and a team of graduate students developed a business plan and submitted it to the annual Enterprize competition organized by the Pittsburgh Technology Council. In April 2000, they won $50,000.

That helped bring in angel investors. Tayur took leave from CMU and set up shop in tight quarters in Oakland with no air conditioning and only one bathroom.

"A typical start-up" was how venture capitalist Joel P. Adams described the operation that he first visited there. "They were really boot-strapping themselves very well." Adams Capital Management, based in Sewickley, helped SmartOps raise $10 million in June 2001 and another $8 million a year later.

The additional funds helped pay for a move to bigger quarters on Federal Street across from PNC Park, as well as fleshing out the ranks of engineers and sales reps. SmartOps has issued MIPO 3.0, an upgrade of its original "multistage inventory planning and optimization" software, and has added forecasting tools.

Such products might not have made sense a decade ago. Many companies switched to just-in-time delivery systems in the 1980s in which inventories are kept lean instead of amassed in large stockpiles. That keeps costs down but also makes the chain more vulnerable to disruptions such as port closings and terrorist attacks.

To make the strategy work, companies began investing in point-of-sale systems and warehouse technology that allowed for the quick collection and dissemination of information.

Enter SmartOps and competitors such as Optiant, a Boston company with ties to Massachusetts Institute of Technology founded in 2000, promising to help optimize all that information to minimize costs.

It takes some missionary zeal to convince clients that they need to make the additional investment, said Larry Lapide, vice president of supply chain management for AMR Research. The Boston firm specializing in software companies works with a number of competitors in the field, including Smart Ops.

To get a foot in the door with customers, SmartOps uses a "proof-of-value" system that offers potential clients a quick look at ways that they might be able to save.

The software provider doesn't promise companies they'll always have exactly the right number of black shirts in Chicago and gold ones in Norfolk. But they'll save money if the software can identify ways to reduce inventories, say, 20 to 50 percent with no decrease in service levels.

"They're actually getting some pretty good sales traction," said Lapide. Not every customer wants to be named, but SmartOps can point to work done for Illinois-based Deere & Co. as well as Shaw's.

Though his firm is not yet profitable, Tayur is comfortable the company has been making progress in line with the industry standard for software start-ups that calls for leaping that hurdle somewhere around the fifth or sixth year.

"This kind of company is never going to be a billion-dollar company," said Lapide, but then very few software firms are. SmartOps is concentrating on building a good client base within its niche.

First published on August 28, 2003 at 12:00 am
Teresa Lindeman can be reached at tlindeman@post-gazette.com or 412-263-2018.
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