Doug Lada: Balancing short and long-term thinking

Published May 20th, 2009 by Randy Littleson 2 Comments

For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Doug Lada, PMPlada-1
Program Management Consultant
CSC

Doug Lada is a Program Management Consultant with over 25 years of experience in the development and implementation of Supply Chain and Warehouse Management solutions.  For the past three years. Doug has been working with CSC and is responsible for all support and training activities related to a Kinaxis RapidResponse implementation at a major Aerospace and Defense corporation.  He works closely with the Supply Chain and Production Control groups to ensure they have the information they need to make the right supply and demand decisions.  Doug’s background includes developing and managing multiple Program Management Offices (PMOs), management of large international multi-site software and hardware system implementations, and the management of software development, implementation services, and project management services at several Supply Chain Management and Warehouse Management System software providers.

Doug is a certified PMP with the PMI and he teaches at the local PMI chapters’ PMP Exam preparation courses.  Doug also has an Electrical Engineering degree from Tufts University in Medford, MA.  Doug can be reached at dlada@csc.com or doug@mseconsult.com.

Kinaxis:  We are experiencing a rapid and perhaps long-lasting downturn in the economy.

  • What lessons can be learned from the downturn that can be applied to supply chain management in the short term and in the long term?
  • What specific supply chain initiatives can be applied in the short term that will have greatest effect on a company’s financial performance and sustainability?
  • How can companies balance short-term cost cutting objectives with the need to strengthen their position for an eventual recovery?

Doug: I believe that companies need to ensure that they maintain their long term objectives for growth, inventory reductions, use of common tools, on time delivery, etc. while they review their short term financial situations.  I see a trend towards cutting core system application development and support without a formal analysis of the long term consequences.  Companies need to ensure they keep their ROI analysis in mind as they look as ways to save on costs in the near term.  It will not help the bottom line if you are able to save X dollars by cutting back on application support if this is going to result in incomplete or wrong data being presented to the supply chain buyers, where they do not order the critical parts in time to support your customer deliveries, and you end up paying expedite fees and/or late delivery penalties that add up to 5X dollars.

A specific initiative that supply chain managers should always apply (and focus on even more in this economy) is inventory reduction.  Through the use of analytical tools, supply chain managers can quickly see what their excess inventory position is over time.  Identifying parts with current excess supply and no future demand should drive buyers to cancel any open purchase orders and look to find ways to use this excess to fulfill other existing demands (i.e. through the use of substitute or alternate parts, etc.).

Kinaxis: Most governments in the developed and developing world have announced stimulus packages, some more ambitious than other.

  • Will this prevent the failure of certain manufacturing sectors, such as the automotive sector in the US?
  • Are there some existing manufacturing sectors that will not require stimulus?
  • Will the stimulus packages spawn new industry sectors, and how soon will these have an effect on the economy?

Doug:  I don’t think the stimulus package by itself will prevent the failure of the automotive sector here in the United States.  The fact that the government has now stepped in to run GM directly might have more of negative effect than a positive one.  What will be the effect of a US government controlled GM on sales in Europe, Asia, the Middle East, and Mexico/Latin America?  Will this end up hurting GM sales, which have historically been neck and neck with Nissan in Mexico?  Will GM lose any of their 9 to 10% share of the European market?

What I do see happening in the automotive sector is a new opportunity for small to medium size suppliers to step in and start providing parts to the automobile manufacturers.  Theses smaller companies might be willing to take a larger risk in delayed payments in order to create a significant percentage increase in their business.  Some of the larger suppliers might be willing to walk away from their losses during the upcoming restructuring and bankruptcies of GM and Chrysler and re-group to focus on industries outside of the automotive sector.

Kinaxis: Outsourcing has been widely adopted in the developed world over the past two decades

  • Will brand owners, in particular, continue to adopt contract manufacturing as a way to reduce overheads?
  • Will the trend of using off-shore contract manufacturing continue, or will near-shoring and even local sourcing become more dominant?

Doug:  I think that many companies are now realizing that the true cost savings from off-shoring of resources is not what they had planned for.  An example of this would be the use of off-shore call centers.  While the per call cost of handling a customer request may be less, how many customers have become frustrated with the service level and/or confused due to language difficulties and have then decided to cancel their service with the company?  With the economy in its current state, there is increased availability of qualified local resources to satisfy these needs.  I believe that more companies will increase the use of local or near shore resources as a risk reduction strategy.  What benefit do you get from a 50% cost savings on your call center operational costs if you lose a significant percentage of revenue as a result?

In February 2009, United announced that they were planning to move 165 call center jobs back to the United States.  Delta just followed suit in April, announcing that it was going to pull 2,000 jobs back as well, claiming customer dissatisfaction after six years of having their call services outsourced.  In these economic times, I think we can expect an increased trend of looking to local sourcing for contract manufacturing.

Kinaxis:  Ford a century ago used to have a fully integrated supply chain from steel manufacturing through to the sale of a car. Now other companies make the steel, most of the components are manufactured by other companies, and yet other companies sell the cars.

  • Will this trend in supply chain specialization concomitant with outsourcing continue at the current pace?
  • What will be the effect on the supply chain if this trend continues?
  • Is there a “natural” number of actors in a supply chain which gives greatest flexibility while limiting complexity?
  • What will this mean in terms of systems requirements to support supply chains with many actors?

Doug:  The issue of accurate communications must also be taken into consideration.  The number of communication channels is defined as n * (n-1) / 2, where n is the number of parties involved.  In Ford’s original model, there were no communication channels to deal with, everything was internal.  In a simple supply chain with 10 suppliers, one factory, 2 dealers, and one finance company, you have 91 possible ways to communicate the wrong information.  Add to this the fact that 23 -27 % of a message can be lost in upwards communications and it amazing that our car manufacturers are able to get the right parts at the right time to the assembly line from multiple suppliers in order to deliver the right car at the right time to the right dealer.

What these complex integrated supply chains need is a common communications vehicle to share information… accurately.  The right tool can provide this solution by allowing factories, suppliers, supply chain buyers, and management to all pull their information from a common source.   This mean that the supplier needs to be able to provide an updated delivery date for a critical part that then gets passed to the buyer and the factory, who will then re-plan the manufacturing schedule, which must then get rolled up into a business heath metric on a scorecard for management.  The entire infrastructure and data process to make this happen automatically is what industry needs to survive in the world of complex integrated supply chains.

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2 Responses to “Doug Lada: Balancing short and long-term thinking”

  1. Pranith

    In my opinion, Doug is overstating the negativity in outsourcing and adverse effects of reducing budgets for application support. I agree with this example of critical parts not being ordered, but as an experienced IT architect with enormous exposure to application support, I disagree with notion that corporations do not tend to fund critical application support.

  2. Doug

    Pranith,

    I am not negative on outsourcing as a viable business option, where it makes sense. My example was focused on call centers and the communication challenges that they present. I have been involved in the successful outsourcing of software programming tasks, for example, to Russia and Mexico. With any outsourcing situation, successful communication will be one of keys to making it a profitable business decision.

    With regard to application support, the realities of the current economy are squeezing IT budgets. It has reached a point in some cases where application support is being impacted. I used the term core, not critical, when referring to these cutbacks. What I mean by this is that a company would not likely cut their Oracle or SAP application support budget, as this is probably their main ERP or MRP system that is running the business. What they may look at, though, are some of the analytical or reporting application tools that have been implemented to augment the features of the main ERP/MRP system. These secondary applications are typically widely used and provide great benefit to their users, saving many man hours of data analysis and providing key decision making inputs and simulation outputs. When budgets get tight and these secondary applications are looked at as targets for cost reduction, how is the cost of not having these tools being calculated, if at all?

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