Archive for July, 2009

The five pillars of supply chain excellence

Published July 31st, 2009 by David Oppenheim 7 Comments

I came across a very interesting IndustryWeek article entitled: “Building A Better Supply Chain”  where experts shared their thoughts about what criteria manufacturers should focus on to improve their supply chain capabilities. 

The University of Tennessee’s J. Paul Dittmann says successful supply chains demonstrate proficiency in these five pillars of excellence:

  • Talent
  • Technology
  • Internal collaboration
  • External collaboration
  • Change management

I couldn’t agree more…what about you?

Posted in Best practices, Supply chain collaboration, Supply chain management

Improvements in production processes are often insufficient to solve customer delivery problems

Published July 30th, 2009 by Duncan Klett 0 Comments

The white paper, Making the Case for Lean Process Lead-Times, makes a compelling case:  Improvements in production processes are often insufficient to solve customer delivery problems.

In addition to production processes, you also need to look at your order management processes.  If you recognize that order management, particularly managing changes to orders, is a key process to your business, then you can address that process with Lean.  What does your customer value?  If you don’t provide that value, you are not  doing your job!  Anything you do that is not directly providing that value is waste.

Most likely, your customer is looking for a positive response (Yes, we can accept your request), that is provided immediately, and is ultimately met.  If you must make a negative or delayed response, your customer is going to want to understand why. 

How can you streamline your processes to be able to provide that answer?  As the paper suggests, the first step is to recognize that changes are more the rule than the exception.  Therefore, design a process to deal with change.  What might be some of the elements of such a process?

  • Most likely, you will need to improve your visibility into your supply chain.  You need to know what material is available that could be committed to a changed order.
  • If the change is a delay, cancel, decrease, or change from one item to another, you will also need to understand the potential for excess material and similar inventory liability questions.
  • In addition to visibility, you want to make your entire supply chain more responsive to changes.  That is, you would like your suppliers to think of “change” as a routine process for their operations.  Ideally, you might want to collaborate with your suppliers and with your customer in order to effect the requested change as painlessly as possible.

Then, there is the human factor.  You need to instil a drive in your people to respond to change, that change is not an annoyance but a critical element of successful customer relationships.

Posted in Lean manufacturing, Supply chain management

More collaboration, and less control; more coordination, and less optimization

Published July 29th, 2009 by Trevor Miles @milesahead 0 Comments

Kinaxis has just published its latest white paper, One-to-Many : Establishing a common platform to address multiple supply chain applications.

Here is the abstract:

What is needed in today’s dispersed and loosely coupled supply chains is more collaboration, and less control; more coordination, and less optimization. Companies must have the ability to enable their front-line people to use their judgment to make fact based decisions which address the surprise and compromise inherent in today’s global and multi-tier supply chains. At the heart of delivering these capabilities is the technical architecture of the supply chain solutions.

This paper describes the integrated set of capabilities that is required to satisfy the business needs of the 21st century supply chain.

Let us know if you agree…

Posted in Milesahead, Supply chain collaboration, Supply chain management

Is a pure IP play the correct strategy for the new world?

Published July 28th, 2009 by Trevor Miles @milesahead 0 Comments

I came across a post by Kevin O’Marah of AMR titled “Engine of Recovery: the Third World”. The central theme of Kevin’s post is how can companies in the western world leverage their IP in the developing world even as they adopt a “knowledge economy” in the western world. An interesting conundrum, especially in light of the massive outsourcing we have seen over the past 10-20 years.

What caught my eye though was the title of his blog. I agree with the opinion expressed by Kevin that the developing world, particularly the so-called BRIC countries, will be the engines of recovery. This is a topic I wrote about in a previous posting titled “Recession or reset?”.

Kevin’s blog addresses some of the strategic issues with which companies in the western world will need to grapple, a key phrase being that “The conundrum goes like this: we all know higher value work is based on intellectual value add and we all hope there will be profits in building IP empires. Unfortunately, today’s pricing and IP protection models are so weak that pure IP players like media and entertainment are getting killed.” I think that companies should focus on products that people can see and touch.

Kevin brings up the concept of “lather, rinse, repeat” to describe how western companies can use existing IP to address the market needs in the developing countries. This is the strategy that all companies need to adopt, particularly in consumer electronics. The environmental movements catch phrase of “reduce, reuse, recycle” can also be repurposed to capture the concept of what companies in the western world need to do in terms of products and IP in order to capture markets in the developing world. I think Nokia has been leading the way with the manner in which it is transforming banking transactions in Africa by using cell phone technology that dates from the “early” days of wireless communication.

I am also fascinated in the rise of companies such as Acer, Huawei, and Lenovo. I came across Wockhardt, an Indian Pharma company, the other day that has revenues of USD833M. I am embarrassed to say I had not heard of them before last week. Combining these companies with Mittal, Tata, Vale, and many other companies I do not know, clearly indicates that a buck can be made in the BRIC countries. The challenge for western companies is the work out the strategies and operational structures required to participate in these new economies. Personally I do not think a pure IP play is the way to go. All of these companies still make stuff.

Posted in General News, Milesahead, Miscellanea

Demand for green is coming…are you ready?

Published July 27th, 2009 by John Westerveld 2 Comments

I came across this article in It outlines Wal-Mart’s plans to implement a “major sustainability initiative” across its supply base. Their goal is to” co-develop a worldwide sustainable product index that will establish a “single source of data” to allow Wal-Mart and (eventually) consumers to evaluate the sustainability of Wal-Mart’s suppliers’ products.” This initiative will be broken into three major phases;

  1. The 100 000 strong Wal-Mart supply base will need to answer a survey on practices in energy and climate, material efficiency, natural resources and people and community
  2. Wal-Mart will partner with universities, suppliers, retailers and government agencies to “develop a global database of information on the lifecycle of products – from raw materials to disposal”
  3. The company will then translate the information it’s gathered into a simple rating for consumers about the sustainability of products on Wal-Mart’s shelves.

The upshot of this is that Wal-Mart believes that its customers will want to be able to choose the more sustainable option when shopping for goods. Like price, quality and reputation, sustainability is becoming a buying consideration.

Wal-Mart has been implementing environmental initiatives internally as well. I’ve seen an example of some of Wal-Mart’s environmental efforts in my local store. We’ve recently been updated to a Wal-Mart Supercenter, complete with grocery store. The freezer aisles only light up the freezer displays when somebody walks by. It’s a bit unnerving, but I’m sure over the course of a day it saves significant energy. Other examples are recycling bins with every garbage bin, sales of re-usable bags and low water flow faucets in the washrooms. If you go onto the Wal-Mart (Canada) website, you’ll find a report on their environmental and corporate responsibility efforts.

The cynical amongst us, might look at Wal-Mart’s efforts and put it down to a marketing gimmick. It may be, but I don’t think so. In fact, it doesn’t matter what their motivation is. The reality is that Wal-Mart’s changes both inside their company and through the new rating system their rolling out, are an indicator of a change that is going to impact all of us. Customers, our governments, and our communities are demanding that we reduce our impact on the environment. Companies are going to need to look at their practices, processes and designs in order to reduce the environmental impact of your operations. The interesting thing is, reducing environmental impact often is simply a matter of reducing waste. The magic of this is that in reducing waste and making the company more sustainable, we actually end up reducing costs.

If Wal-Mart’s initiatives are successful, you can imagine that other retailers will be stepping up their efforts to match Wal-Mart’s. The impact of this environmental focus won’t stop with the brand owners. Suppliers and contract manufacturers to those brand owners will be asked to reduce their environmental footprint. Given that this is coming, companies really have two choices. 1) Wait until one of your customers forces the issue and try to catch up or 2) Be a leader and start looking now at your processes to see where waste and poor environmental practices can be eliminated. Those companies that are environmental leaders will have the competitive advantage in the future.

What are your plans to reduce your company’s environmental impact? What tools do you use to measure and improve your sustainability practices? Comment back and let us know.

Posted in Best practices, Supply chain management

Where can you get the best bang for your buck when looking to improve lead-times?

Published July 24th, 2009 by John Westerveld 1 Comment

In a white paper titled “Making the case for Lean Process Lead-times”, David Oppenheim explores an often unexploited source of lead-time improvement; information processing.

Let’s take a look at two companies that manufacture the same item.  One company produces excellent quality for a reasonable cost and can typically deliver in 15 days.   The other company has similar pricing, the same level of quality but can deliver goods (always on time) in 8 days.  If you were in the market for the item these companies produce, which company would you rather deal with?  It doesn’t take a supply chain guru to say that you would rather buy from the company that can deliver it in 8 days. 

Now let’s turn it around.  Let’s say you could be the company that delivers in 8 days or you could be the company that delivers in 15 days.  Which company would you rather be?  This might be more complex because I haven’t talked about profit margin, market share, and other factors.  But I think I would want to be the company that can deliver in 8 days. Why?  Because that company has a competitive advantage…and it’s not just lead-time. When you can reduce lead-time, some very interesting (and good) things start to happen to your supply chain;

  1. To achieve this level of lead-time reduction, you’ve needed to do some serious waste elimination.  This typically means your operations are more efficient.
  2. When you reduce lead-time, you need less safety stock.  Safety stock is used to cover demand and supply variation during the lead-time of the part.  If your lead-time were 0 (you could snap your fingers like the Great Gazoo and make inventory appear), you would need no safety stock because you could handle any variation in supply or demand.
  3. With less inventory, you need less space to store it, thus reducing capital costs.
  4. When you reduce lead-time, you can react faster to changes in demand signals.
  5. With reduced lead-time you can promise delivery to your customers with confidence.

As the white paper points out, companies typically focus their lead-time improvement efforts on tackling internal manufacturing lead-times or working with suppliers to improve their lead-times.  This is valuable and companies should continue to challenge waste that leads to longer lead-times wherever it occurs.  However, the white paper explores another key opportunity for improving lead-time. The administrative process.  The time it takes from when a customer originally places the order to when work begins.  This lead-time includes many activities;  order configuration, order entry, scheduling, detailed planning, sourcing, shortage and constraint resolution and finally kitting.  In many cases – especially when manufacturing lead-times have already been reduced – the administrative activities take more time than manufacturing the goods!  This is an area of opportunity for many companies that is often overlooked and can yield huge benefits if addressed.

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Posted in Lean manufacturing

The expiry factor introduces unique constraints on planning

Published July 23rd, 2009 by Martin Buckley 2 Comments

I came across a very interesting response to my ‘Constrained planning vs. finite capacity scheduling: which way to go?’ article, which brought up a new angle to view constrained resource and material planning from. The response was talking about planning in the biotech industry as compared to the aerospace industry, commenting on how different the two were, and the need for a good planning tool that could accommodate the unique needs of the biotech and pharmaceutical industry.

Having worked with customers in both the aerospace and biotech industries, I can appreciate the significant differences between the two when it comes to constrained planning. While the needs of the aerospace and biotech industries may differ due to their very different products and production methods, several things they also share in common are:

  1. They are both heavily regulated and validated industries
  2. The need to holistically plan over the entire supply chain, across enterprise boundaries
  3. The need to model constrained resources and material without overly complex setup and maintenance
  4. The need to be able to simulate complex supply chain systems for what if analysis to ensure the best production plan is produced
  5. The need to be able to rapidly react to changes in supply or demand in order to quickly readjust the plan to meet real world conditions
  6. The ability to get results in real time for complex product structures and supply chain networks

Biologics differ significantly from aerospace in several regards:

  1. Biologics often tend to be supply driven (due the limitations of batch production of the drug substance), whereas aerospace is demand driven
  2. Biotech will have an inverted product portfolio (few raw components, many finished goods or presentations), whereas the opposite is true in aerospace (few FG’s, many raw materials and sub-assemblies)
  3. Biologic planning is centered around expiry, whereas aerospace planning is centered around model/unit effectivity or serialization at the lower tiers.

These differences in biotech introduce unique constraints on planning due to the expiry factor, as supplies will become unavailable over a planning horizon once they expire, usually at a significant cost to the company. In order to mitigate this risk, any planning tools hoping to meet the requirements of the biotech industry must support expiry planning. Most commercial ERP systems support expiry only from a transactional point of view (tracking the expiry of produced lots), whereas what is really needed is the ability to PLAN with expiry. This raises the question, Should I use a tool created specifically for biotech, or can I use a broader based tool that could support both aerospace and biotech planning? The advantage of the former is it would contain all the necessary functionality to meet biotech needs, but the disadvantages of vertical specific planning tools outweigh the advantages.

These include :

  • The smaller target market leads to lower sales and revenue volumes, thereby making the company supporting the tool more financially vulnerable
  • The concentration of resources in one vertical means opportunities to leverage cross industry knowledge is lost (As mentioned above, there are a lot of commonalities in supply chain planning across radically different industries). This includes community knowledge and consulting services as well.
  • The requirements needed to meet multiple industry verticals lead to the development of a more robust and feature rich tool, as many different users in many different industries ensure full utilization of all aspects of the tool

That being said, we next need to look at what functionality is required to meet biotech needs and aerospace. The tool should be able to allow rapid changes to the supply and demand picture in simulation, so the planning team can react quickly to changes in the supply chain picture. The tool should be able to get data from multiple ERP, databases, spreadsheets, and other less structured sources, and bring it together in a holistic view of the supply chain. Since many industries now sub contract or outsource production and materials, the tool must be able to cross the enterprise boundary, so a complete picture of the supply chain can be presented.

Current best practices dictate that a team approach to problem solving results in better results and faster turnaround, so the tool must be able to support collaboration between users over a large geographical area. Lastly, the tool must make it easy for the users to manipulate and change many data points in real time, create simulation scenario’s, and report on their findings in order to give relevant feedback to the organization.

Now that we have examined the general capabilities required of the planning tool, let’s look at specific requirements as it relates to biotech. As stated before, expiry plays a large part in the planning and supply chain process of biologic products. Once a product (raw material, intermediate,  or finished product) reaches its expiry limit, several factors come into play. For products with a soft expiry date (expiry can be extended by regulation or by re-sterilizing in the case of med devices), some action is still required, even if it is just re-labelling. In the case of hard expiry (product expiry cannot be extended by regulation), the product must be scrapped, disposed of, and written off the books. This can involve significant expense in disposal and scrap costs. There may be steps in the manufacturing process where expiry can be reset (fill formulation, etc.), so it becomes important to have added visibility at this stage. As well, finished goods will most likely have a stop sell date on them as well (the time offset before expiry that a product can no longer be shipped to a customer), as customers do not want to be stuck holding expired product in their inventory. This can vary by market and country, allowing the product to be used in one market but not another. When planning these types of products, the goal will be to minimize the amount of product that is not used and not sent to market. This also requires that sufficient safety stock is carried to allow proper coverage of the variations in supply and demand, as people could be depending on the product for their very lives and well being.

All of these factors make inventory turns reduction in biotech that much more difficult to accomplish, as the results of a misstep can have devastating consequences. In order to manage this difficult task, a planning tool capable of giving a clear picture of expiry, supply, and demand across the entire supply chain is a must. The ability to rapidly respond to changes in the overall business environment will help ensure that the dual goals of reduced inventory and adequate supply to meet demand can be met effectively by the planning organization with the optimal plan that accommodates the current environment.

Posted in Inventory management, Supply chain management

The customer is always #1

Published July 22nd, 2009 by Carol McIntosh 11 Comments

For many years I have worked in the high tech industry. Recently my experiences have been in the pharmaceutical industry and I have discovered an interesting insight. There is no question that employees in a pharmaceutical company know why they are there. It is all about the customer.  The customers are patients and often the pharmaceutical companies are producing drugs that are saving people’s lives. Employees certainly have a sense of purpose in their jobs and there is no doubt that the customer is #1. It is intrinsic. Everyone from the person making the bulk formula to the shipping clerk to the CEO understand what it means not to deliver on time.

In other organizations the customer is not always #1 or at least certain parts of the organization are detached from the customer. Should that be the case? I don’t think so. Understanding the customer is just as important in high tech or aerospace or consumer packaged goods. It is more difficult to create a culture of ‘customer is always #1’ in some organizations. However everyone gains a greater sense of purpose in their jobs if the company operates this way. How many buyers are expediting or cancelling parts orders and don’t know who they are affecting?

I am not suggesting that other metrics, like revenue or profit are ignored but customer value, customer satisfaction, and customer responsiveness are differentiators for companies. Is this difficult to measure? Certainly. Your CFO cannot objectively measure customer satisfaction as he or she can measure inventory turns or revenue. One has to consider the opportunity for increased market share and separating your company from your competition.

An excellent post by Colleen Crum that spans a number of topics touches on poor customer service inevitably being the result of poor decisions and poorly designed processes that lack integration.
‘Advances in communicating information across a supply chain aid in better decision making and collaboration’

This confirms that there are a number of opportunities to improve your focus on the customer.

a) Continuously communicate the value of the customer to all employees
b) Identify key objectives linked to customer value for all employees
c) Ensure that processes are integrated such that individual contributors at all levels understand their impact on the customer
d) Ensure that the appropriate tools are in place that identify the customer impact of your actions. This may be the buyer expediting a part or a production scheduler adjusting a production plan.

The end result of having the appropriate people, processes and tools is a leaner, more efficient workforce rewarded by providing customer value which results in positive impact to other key metrics such as revenue, margin and shareholder value.

Posted in Best practices, Supply chain management