For companies, in order to win in the competition, how to reduce the high cost of the supply chain is very important. By optimizing the supply chain network, some companies have found a way to balance and minimize supply chain costs, gaining real benefits from lowering supply chain costs and improving profitability. A good network optimization software can identify up to 10% to 20% of the cost savings in the existing enterprise supply chain, significantly improving the company's customer service level.
For most companies, this amounts to a multi-million dollar cash flow. This paper examines the best practices for the world's leading companies in supply chain design, and describes how retail companies can rapidly build models using professional software tools and Supply Chain Guru software, the world's leading supply chain modeling application. Analyze and optimize the company's entire supply chain, while assessing network structure, supply chain strategy, and overall operations to balance costs, time, and operational capabilities. It will also adjust the company's supply chain layout and product flow to minimize total costs.
Strategy 1: Differentiated Product Segmentation Business Issues:
Most companies want to provide customers with as many product categories as possible to meet customer needs. However, depending on the size, color, geographic area, price, seasonality, and availability of the product, the customer's buying patterns vary widely, and many retailers ignore these unique purchase patterns. The product flow planning through a single, fixed model leads to a shortage of goods in real demand for high-demand or high-margin goods, and the inventory of under-sold goods is too large.
Optimization:
Using supply chain product segmentation (or differential research) is the best way to design a differentiated supply chain. It can better meet the inventory and delivery needs of individual products. By examining the characteristics of individual products, such as product profitability, circulation speed and variability, identifying product trends and "collections" of similar products, differentiate between low-flow products and high-volume products. Because each set may require different purchasing and supply strategies, for example, setting unique services for different products, setting common stock targets for similar products, and sending products directly to retail stores or distribution centers. Through the modeling and verification, the supply chain of each subdivided product group is implemented to achieve the lowest operating costs and the best inventory and transportation results.
example:
A large retailer (clothing company) owns 20,000 different products (product numbers) and all products need to flow through a secondary distribution network. The supply chain process used is that several large distribution centers are responsible for overall procurement, and then these large distribution centers transport the integrated products to regional distribution centers. Each regional distribution center distributes products for retail stores within its geographic area. Based on the product's circulation speed, profit margins, and changes in demand, vendors have divided 10 unique product portfolios to subdivide the supply chain.
Supply Chain Guru software provides unique strategies for segmented product portfolio supply chain, such as: speeding up the product shelves and reducing the loss of sales due to stock out. Create new point-to-point transportation routes for high-demand and high-margin products, enabling frequent out-of-stock products in stores to be available within one hour. Reduced sales loss, but also reduced inventory costs, so that high-demand and high-profit product supply chain is optimized (through planning, the cost savings will exceed the cost of periodic replenishment).
Strategy 2: Correct Inventory Settings Business Issues:
As described in Strategy 1, the profitability and velocity of different products vary widely across the supply chain. Subdividing and defining supply chain products will enable companies to obtain more effective decision-making strategies for service levels or replenishment. However, under normal circumstances, the variability of customer demand and buyer supply makes it difficult for companies to determine the correct inventory. The problem becomes more complicated when the supply chain has many levels and the inventory of each product must be determined at each level.
Optimization:
Using multi-level inventory optimization, determine the amount of inventory that must be held at each supply chain level (in units of SKUs or product categories) and locations of facilities (eg, where to set up inventory and what is the inventory?). This inventory configuration can provide the required quality of service at the lowest cost.
This model incorporates both the customer's needs and the changes in the supply side of the supply side, and can propose the lowest total cost inventory solution that meets the needs of each product. The user only needs to define two indicators of product service requirements and location service requirements. For example, "a commodity with a product number 333 in the Chicago store needs 99% of the possibility to receive a replenishment within the required time." In the case that this demand can be met, the inventory optimization technology will automatically decide on each level and The minimum inventory of products at the location, thereby minimizing inventory costs.
example:
A chain of stores has seven regional distribution centers that deliver goods to 500 stores across the United States. The 1500 kinds of goods that account for 70% of total sales are stored in 7 distribution centers. According to the characteristics of the product, the company has established seven different levels of delivery services from 85% to 99%.
Multi-level inventory optimization analyzes the demand and delivery time variables for each combination (product/location). Although many places require higher inventory levels, the software analyzes some special cases, increasing the product inventory of 3 to 4 regional distribution centers, while the inventory of other distribution centers is reduced. This multi-level inventory optimization is adopted as The chain stores saved $5 million in supply chain costs.
Strategy 3: Optimization of Product Flow Paths Business Issues:
From purchasing products to delivering products to customers, there are many variables in the process of complete product circulation. These variables include: supplier selection, purchase quantity, frequency of purchase, mode of transport, port of entry, distribution center, carrier, transportation route, and order/transport time. This results in countless circulation “paths†throughout the supply chain, and there are many different ways in which goods can be transported from the starting point to the final retail point.
Optimization:
The goal to be achieved is to determine the best transportation process for the commodity, minimize the total circulation cost, and realize service expectations. Through the analysis of Smart Chain Supply Chain Guru software, it is possible to simulate different transportation and distribution processes for each product level or product mix. Select the appropriate supply chain network configuration scheme to save the supply chain cost and achieve the lowest total cost.
example:
A global consumer goods company wants to assess the ability to deliver goods from ten manufacturing locations across Europe to customers in Spain. They first delivered 90% of their merchandise to a single distribution center in northeastern Spain and then delivered it by land. When implementing product flow optimization, their analysis team added dozens of other transportation options to the model, including the addition of new multimodal transport centers, distribution centers, inland waterway transport, and short-haul seaports. At the same time, service level restrictions have been set to ensure that each solution can meet the high level of customer service.
Newly added variables in the analysis create thousands of potential product circulation options, and the optimized results also allow the lowest cost circulation of each product. The results show that opening a second manufacturing plant in central Spain can transfer more than 50% of production to a new distribution center, while using more rail transport will create the best solution. Although the new plan will bring about new factory construction, operating costs and inventory holding costs, but these costs will be offset by a substantial reduction in overall transport costs, thus reducing the total cost of its supply chain 15 million euros.
Strategy 4: Optimization of business issues brought about by procurement consolidation:
If each distribution center in an enterprise's supply chain network is replenished individually, product costs will rise as distribution centers frequently order small batches of products. The reason for the increase in costs is that there are fewer purchases and discounts, and frequent non-integrated vehicle delivery results in higher transportation costs.
Optimization:
Re-establish a distribution center (perhaps closest to the supplier) as a procurement hub, transport all goods from the supplier to the new distribution center, and then, if necessary, transfer a certain amount of goods to other distributions. center. The goal is to significantly reduce overall supply chain costs by adding a second level of distribution in the supply chain. Although this will increase the second-tier loading, unloading, transportation, and redistribution costs for the distribution network, it can make more efficient use of transportation assets and bring in more discounts through massive purchases, which will ultimately bring about significant economic benefits. At the same time, the cost of pre-purchased inventory has also been reduced to a minimum.
example:
A large retailer purchases a large number of products from Chicago and distributes these products to the southern and central Atlantic regions of the United States. If shipped directly, the product will be delivered to the destination with less than the entire vehicle load. In order to find an optimal solution, the company simulated the existing supply chain structure and compared the options of converting an existing distribution center into a cross-over/redistribution center. After the optimization was completed, it was found that the use of a distribution center in Maryland, the US, as a transit center, as a new procurement hub for large-scale procurement and re-distribution transportation, could save the company more than US$1 million per year.
The following costs have been reduced through the optimisation programme: overall transport costs (full loading reduces transport costs); purchase costs for the entire purchase (suppliers simplify ordering and shipping due to integrated ordering); inventory costs (even at the integrated trans-shipment centre) Additional loading and unloading costs, but the downstream distribution center inventory has been reduced).
Strategy 5: Static Multi-Site Transport Route Design Business Issues:
If the company transports goods frequently and in small batches, the transportation costs will increase. However, if you regularly check the delivery record, you will find that there is an opportunity for integrated transportation. Therefore, considering establishing a static multi-stop transportation route will reduce overall transportation costs.
Optimization:
Optimization of transportation routes can identify the rules of repeated transportation and can integrate them. For example, orders for smaller shipments that are shipped from the same distribution center to the same retail store, orders from the same distribution center to the same destination, and orders destined for the same place are consolidated. The goal is to increase the amount of transportation each time by integrating small batches of goods into vehicle transportation and reduce the frequency of transportation so as to achieve the lowest transportation costs. When simulating the supply chain network, you can combine all alternative transportation plans with key variables such as time, cost, capacity, delivery parameters, and finally determine the optimal combination of networks or the optimal number of transport assets and the geographical location of these assets. These simulated path simulation strategies can predict actual costs and service levels.
example:
An office supplies retail company is located in the distribution center of Connecticut and is responsible for delivering goods to retail stores in the northeastern United States. According to historical data, due to the difficulty of setting up full-vehicle transportation in the New England area (due to narrow roads, limited road opening, and frequent road closures), the distribution center will ship directly to each retail store. With the establishment of a static multi-site model, new truck lanes established according to road restrictions have been proven to be very effective. They convert many of the direct-delivered routes to salty, multi-stationed, full-vehicle transport routes. By consolidating the transportation routes and changing the transportation routes, the company saved more than US$500,000 in freight costs each year.
Strategy 6: Planning the service scope of the distribution center Business issues:
Distribution networks must improve as demand increases. Because distribution centers usually have only limited capacity, distribution and transportation capabilities are limited by a reasonable delivery distance. By adding more distribution centers in strategic areas, the network structure can be optimized and the total supply chain cost can be reduced. Even if the cost of maintaining these logistics facilities is increased, it can actually save a lot of costs for enterprises by balancing the workload of the distribution centers and reducing the transportation distance.
Optimization:
By determining the appropriate service areas for each distribution center, the lowest supply chain cost is achieved, which is to determine which distribution center for which retail store to deliver. The optimization model balances the capacity of the distribution center with the costs of transportation and unloading, and balances the impact of the capacity of the distribution center. It is finally confirmed that adding new distribution centers in strategic areas will shorten the transportation route. In procurement integration, the optimal model from the distribution center to the retail store identifies and balances all costs, identifies the best balance point, and then determines the best supply strategy. Another variant of this assessment is that by analyzing the status of suppliers and SKUs, it is appropriate to make a decision on when to apply direct distribution rather than through distribution center distribution model.
example:
A national retailer in the United States serves all its retail outlets with three major distribution centers in Houston, Borteon, and Denver and outsourcing distribution centers in Chicago, Los Angeles, San Francisco, and Seattle. However, some supply lines are unreasonable or too long. For example, a distribution center in Denver distributes to Michigan, and a distribution center in Houston distributes to Ohio and northern Florida.
By optimizing the supply chain network, the company discovered that adding a new distribution center in Atlanta and increasing the operational capacity and purchasing capacity of the Chicago distribution center will allow them to shorten the transportation route, rationalize the transportation route, and balance the capacity of the distribution center. Significant savings in transportation costs will save the company $6.2 million annually.
Strategy 7: Assess customer service costs Business issues:
Each customer, product, service level, and distribution channel contributes different profit margins. A company must first identify those products and customer portfolios that are not profitable, low-margin, high-cost, and then develop a unique development plan for each combination to increase profitability.
Optimization:
Customer Service Cost Optimization (CTS0) is a method for analyzing and quantifying all activities and costs occurring on a point-to-point supply chain. The cost of customer service involves various functional areas on the supply chain, and a reasonable analysis of it can more accurately assess the total profit gained from the sale of a product to a customer.
The goal is to sell each product to each customer at the lowest cost. The customer service cost model incorporates all the necessary steps to complete the customer delivery task. The model simulates how each major supply chain activity affects the entire point-to-point customer service. At the SKU level, determine the total cost of providing services to each customer based on the specified service level. A model was established to determine the optimal supply chain network design, structure, and logistics approach by evaluating thousands of activity-based cost options to achieve the lowest total customer service cost based on the entire supply chain balance.
example:
A North American retailer with more than 900 stores and thousands of high-margin SKUs cannot figure out the total cost of delivering each product to each customer (store) and speculates that they have a lot of unprofitable profits. The store/product mix is ​​still in operation, so it is hoped that by assessing the cost of customer service, eliminating unprofitable portfolios and bringing higher profit margins.
The analysis included all major cost components throughout the supply chain (including purchase prices, transportation, tariffs, removal costs, warehousing, inventory costs, etc.). The map shows the circulation of each product to determine the cost of each location to store each product, while including the sales price to calculate profit margins. Different scenarios are used to create different scenarios in this model. For example, all products must be placed in different locations; unprofitable products must be completely removed; if necessary, any unprofitable product/retail portfolio can also be eliminated. In the end, the company achieved a total cost reduction of $22 million and a good 2% profit margin.
For most companies, this amounts to a multi-million dollar cash flow. This paper examines the best practices for the world's leading companies in supply chain design, and describes how retail companies can rapidly build models using professional software tools and Supply Chain Guru software, the world's leading supply chain modeling application. Analyze and optimize the company's entire supply chain, while assessing network structure, supply chain strategy, and overall operations to balance costs, time, and operational capabilities. It will also adjust the company's supply chain layout and product flow to minimize total costs.
Strategy 1: Differentiated Product Segmentation Business Issues:
Most companies want to provide customers with as many product categories as possible to meet customer needs. However, depending on the size, color, geographic area, price, seasonality, and availability of the product, the customer's buying patterns vary widely, and many retailers ignore these unique purchase patterns. The product flow planning through a single, fixed model leads to a shortage of goods in real demand for high-demand or high-margin goods, and the inventory of under-sold goods is too large.
Optimization:
Using supply chain product segmentation (or differential research) is the best way to design a differentiated supply chain. It can better meet the inventory and delivery needs of individual products. By examining the characteristics of individual products, such as product profitability, circulation speed and variability, identifying product trends and "collections" of similar products, differentiate between low-flow products and high-volume products. Because each set may require different purchasing and supply strategies, for example, setting unique services for different products, setting common stock targets for similar products, and sending products directly to retail stores or distribution centers. Through the modeling and verification, the supply chain of each subdivided product group is implemented to achieve the lowest operating costs and the best inventory and transportation results.
example:
A large retailer (clothing company) owns 20,000 different products (product numbers) and all products need to flow through a secondary distribution network. The supply chain process used is that several large distribution centers are responsible for overall procurement, and then these large distribution centers transport the integrated products to regional distribution centers. Each regional distribution center distributes products for retail stores within its geographic area. Based on the product's circulation speed, profit margins, and changes in demand, vendors have divided 10 unique product portfolios to subdivide the supply chain.
Supply Chain Guru software provides unique strategies for segmented product portfolio supply chain, such as: speeding up the product shelves and reducing the loss of sales due to stock out. Create new point-to-point transportation routes for high-demand and high-margin products, enabling frequent out-of-stock products in stores to be available within one hour. Reduced sales loss, but also reduced inventory costs, so that high-demand and high-profit product supply chain is optimized (through planning, the cost savings will exceed the cost of periodic replenishment).
Strategy 2: Correct Inventory Settings Business Issues:
As described in Strategy 1, the profitability and velocity of different products vary widely across the supply chain. Subdividing and defining supply chain products will enable companies to obtain more effective decision-making strategies for service levels or replenishment. However, under normal circumstances, the variability of customer demand and buyer supply makes it difficult for companies to determine the correct inventory. The problem becomes more complicated when the supply chain has many levels and the inventory of each product must be determined at each level.
Optimization:
Using multi-level inventory optimization, determine the amount of inventory that must be held at each supply chain level (in units of SKUs or product categories) and locations of facilities (eg, where to set up inventory and what is the inventory?). This inventory configuration can provide the required quality of service at the lowest cost.
This model incorporates both the customer's needs and the changes in the supply side of the supply side, and can propose the lowest total cost inventory solution that meets the needs of each product. The user only needs to define two indicators of product service requirements and location service requirements. For example, "a commodity with a product number 333 in the Chicago store needs 99% of the possibility to receive a replenishment within the required time." In the case that this demand can be met, the inventory optimization technology will automatically decide on each level and The minimum inventory of products at the location, thereby minimizing inventory costs.
example:
A chain of stores has seven regional distribution centers that deliver goods to 500 stores across the United States. The 1500 kinds of goods that account for 70% of total sales are stored in 7 distribution centers. According to the characteristics of the product, the company has established seven different levels of delivery services from 85% to 99%.
Multi-level inventory optimization analyzes the demand and delivery time variables for each combination (product/location). Although many places require higher inventory levels, the software analyzes some special cases, increasing the product inventory of 3 to 4 regional distribution centers, while the inventory of other distribution centers is reduced. This multi-level inventory optimization is adopted as The chain stores saved $5 million in supply chain costs.
Strategy 3: Optimization of Product Flow Paths Business Issues:
From purchasing products to delivering products to customers, there are many variables in the process of complete product circulation. These variables include: supplier selection, purchase quantity, frequency of purchase, mode of transport, port of entry, distribution center, carrier, transportation route, and order/transport time. This results in countless circulation “paths†throughout the supply chain, and there are many different ways in which goods can be transported from the starting point to the final retail point.
Optimization:
The goal to be achieved is to determine the best transportation process for the commodity, minimize the total circulation cost, and realize service expectations. Through the analysis of Smart Chain Supply Chain Guru software, it is possible to simulate different transportation and distribution processes for each product level or product mix. Select the appropriate supply chain network configuration scheme to save the supply chain cost and achieve the lowest total cost.
example:
A global consumer goods company wants to assess the ability to deliver goods from ten manufacturing locations across Europe to customers in Spain. They first delivered 90% of their merchandise to a single distribution center in northeastern Spain and then delivered it by land. When implementing product flow optimization, their analysis team added dozens of other transportation options to the model, including the addition of new multimodal transport centers, distribution centers, inland waterway transport, and short-haul seaports. At the same time, service level restrictions have been set to ensure that each solution can meet the high level of customer service.
Newly added variables in the analysis create thousands of potential product circulation options, and the optimized results also allow the lowest cost circulation of each product. The results show that opening a second manufacturing plant in central Spain can transfer more than 50% of production to a new distribution center, while using more rail transport will create the best solution. Although the new plan will bring about new factory construction, operating costs and inventory holding costs, but these costs will be offset by a substantial reduction in overall transport costs, thus reducing the total cost of its supply chain 15 million euros.
Strategy 4: Optimization of business issues brought about by procurement consolidation:
If each distribution center in an enterprise's supply chain network is replenished individually, product costs will rise as distribution centers frequently order small batches of products. The reason for the increase in costs is that there are fewer purchases and discounts, and frequent non-integrated vehicle delivery results in higher transportation costs.
Optimization:
Re-establish a distribution center (perhaps closest to the supplier) as a procurement hub, transport all goods from the supplier to the new distribution center, and then, if necessary, transfer a certain amount of goods to other distributions. center. The goal is to significantly reduce overall supply chain costs by adding a second level of distribution in the supply chain. Although this will increase the second-tier loading, unloading, transportation, and redistribution costs for the distribution network, it can make more efficient use of transportation assets and bring in more discounts through massive purchases, which will ultimately bring about significant economic benefits. At the same time, the cost of pre-purchased inventory has also been reduced to a minimum.
example:
A large retailer purchases a large number of products from Chicago and distributes these products to the southern and central Atlantic regions of the United States. If shipped directly, the product will be delivered to the destination with less than the entire vehicle load. In order to find an optimal solution, the company simulated the existing supply chain structure and compared the options of converting an existing distribution center into a cross-over/redistribution center. After the optimization was completed, it was found that the use of a distribution center in Maryland, the US, as a transit center, as a new procurement hub for large-scale procurement and re-distribution transportation, could save the company more than US$1 million per year.
The following costs have been reduced through the optimisation programme: overall transport costs (full loading reduces transport costs); purchase costs for the entire purchase (suppliers simplify ordering and shipping due to integrated ordering); inventory costs (even at the integrated trans-shipment centre) Additional loading and unloading costs, but the downstream distribution center inventory has been reduced).
Strategy 5: Static Multi-Site Transport Route Design Business Issues:
If the company transports goods frequently and in small batches, the transportation costs will increase. However, if you regularly check the delivery record, you will find that there is an opportunity for integrated transportation. Therefore, considering establishing a static multi-stop transportation route will reduce overall transportation costs.
Optimization:
Optimization of transportation routes can identify the rules of repeated transportation and can integrate them. For example, orders for smaller shipments that are shipped from the same distribution center to the same retail store, orders from the same distribution center to the same destination, and orders destined for the same place are consolidated. The goal is to increase the amount of transportation each time by integrating small batches of goods into vehicle transportation and reduce the frequency of transportation so as to achieve the lowest transportation costs. When simulating the supply chain network, you can combine all alternative transportation plans with key variables such as time, cost, capacity, delivery parameters, and finally determine the optimal combination of networks or the optimal number of transport assets and the geographical location of these assets. These simulated path simulation strategies can predict actual costs and service levels.
example:
An office supplies retail company is located in the distribution center of Connecticut and is responsible for delivering goods to retail stores in the northeastern United States. According to historical data, due to the difficulty of setting up full-vehicle transportation in the New England area (due to narrow roads, limited road opening, and frequent road closures), the distribution center will ship directly to each retail store. With the establishment of a static multi-site model, new truck lanes established according to road restrictions have been proven to be very effective. They convert many of the direct-delivered routes to salty, multi-stationed, full-vehicle transport routes. By consolidating the transportation routes and changing the transportation routes, the company saved more than US$500,000 in freight costs each year.
Strategy 6: Planning the service scope of the distribution center Business issues:
Distribution networks must improve as demand increases. Because distribution centers usually have only limited capacity, distribution and transportation capabilities are limited by a reasonable delivery distance. By adding more distribution centers in strategic areas, the network structure can be optimized and the total supply chain cost can be reduced. Even if the cost of maintaining these logistics facilities is increased, it can actually save a lot of costs for enterprises by balancing the workload of the distribution centers and reducing the transportation distance.
Optimization:
By determining the appropriate service areas for each distribution center, the lowest supply chain cost is achieved, which is to determine which distribution center for which retail store to deliver. The optimization model balances the capacity of the distribution center with the costs of transportation and unloading, and balances the impact of the capacity of the distribution center. It is finally confirmed that adding new distribution centers in strategic areas will shorten the transportation route. In procurement integration, the optimal model from the distribution center to the retail store identifies and balances all costs, identifies the best balance point, and then determines the best supply strategy. Another variant of this assessment is that by analyzing the status of suppliers and SKUs, it is appropriate to make a decision on when to apply direct distribution rather than through distribution center distribution model.
example:
A national retailer in the United States serves all its retail outlets with three major distribution centers in Houston, Borteon, and Denver and outsourcing distribution centers in Chicago, Los Angeles, San Francisco, and Seattle. However, some supply lines are unreasonable or too long. For example, a distribution center in Denver distributes to Michigan, and a distribution center in Houston distributes to Ohio and northern Florida.
By optimizing the supply chain network, the company discovered that adding a new distribution center in Atlanta and increasing the operational capacity and purchasing capacity of the Chicago distribution center will allow them to shorten the transportation route, rationalize the transportation route, and balance the capacity of the distribution center. Significant savings in transportation costs will save the company $6.2 million annually.
Strategy 7: Assess customer service costs Business issues:
Each customer, product, service level, and distribution channel contributes different profit margins. A company must first identify those products and customer portfolios that are not profitable, low-margin, high-cost, and then develop a unique development plan for each combination to increase profitability.
Optimization:
Customer Service Cost Optimization (CTS0) is a method for analyzing and quantifying all activities and costs occurring on a point-to-point supply chain. The cost of customer service involves various functional areas on the supply chain, and a reasonable analysis of it can more accurately assess the total profit gained from the sale of a product to a customer.
The goal is to sell each product to each customer at the lowest cost. The customer service cost model incorporates all the necessary steps to complete the customer delivery task. The model simulates how each major supply chain activity affects the entire point-to-point customer service. At the SKU level, determine the total cost of providing services to each customer based on the specified service level. A model was established to determine the optimal supply chain network design, structure, and logistics approach by evaluating thousands of activity-based cost options to achieve the lowest total customer service cost based on the entire supply chain balance.
example:
A North American retailer with more than 900 stores and thousands of high-margin SKUs cannot figure out the total cost of delivering each product to each customer (store) and speculates that they have a lot of unprofitable profits. The store/product mix is ​​still in operation, so it is hoped that by assessing the cost of customer service, eliminating unprofitable portfolios and bringing higher profit margins.
The analysis included all major cost components throughout the supply chain (including purchase prices, transportation, tariffs, removal costs, warehousing, inventory costs, etc.). The map shows the circulation of each product to determine the cost of each location to store each product, while including the sales price to calculate profit margins. Different scenarios are used to create different scenarios in this model. For example, all products must be placed in different locations; unprofitable products must be completely removed; if necessary, any unprofitable product/retail portfolio can also be eliminated. In the end, the company achieved a total cost reduction of $22 million and a good 2% profit margin.
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