Archive for August, 2009

Those darn zombies, they keep turning up where we least expect them!  Not satisfied with haunting dark caves and grave yards, they’re now showing up in shopping malls, classic literature and our cities.  This time, however, they’ve gone too far!  They’ve infested our supply chains!

Over at the @Risk blog, there is a post about a recent Reuters article which explains that supply chain zombies could seriously affect your ability to deliver.  Ok, so what’s a supply chain zombie?  According to the Reuter’s article, a supply chain zombie is a supplier that has been significantly impacted by the downturn, is significantly undercapitalized and are just limping along.  However, as soon as demand starts to increase, they will fold because they can’t get the funding to retool and restock to meet the demand.  They are effectively dead, but they don’t know it. They’re zombies.   More disconcerting is that YOU may not know they’re dead – until you start ramping up demand – at which point it’s too late.

As discussed in earlier posts; ‘Supply chain risks change as economic tides turn,’ ‘Taking action now to prepare for the recovery’ and ‘The right supply chain priorities during the downturn position you for future success‘, there are many things that companies can do during economic downturns to ensure that they are positioned for success when things turn around.  Assessing areas of supply chain risk is one of those things that should be done now (and given the coming zombie invasion, is all the more urgent.)

Supply chain risk assessment starts with identifying what suppliers are most important to you;  What supplier parts contribute most to your revenue?   What suppliers contribute most to your revenue?  Once you have these key parts and suppliers identified, you need to start assessing risk.  For key parts, do you have alternate sources?  For key suppliers, what is their financial risk?   If you are already doing supplier analysis, but your last review was more than a year ago, you need to revisit those suppliers. A lot has changed in the last 12 months. 

For those suppliers at risk, you need to make a decision.  Do you help that supplier ramp up?   Or do you abandon them and find another supplier?  That decision is really based on the history you’ve had with that supplier.  Great suppliers are hard to come by and it could very well be worth your while to help the great suppliers survive.

Now…if the zombie hoard (real zombies, not un-dead suppliers) really do rise up,  Amazon has got you covered with their Zombie Survival Kit.  Also, Ottawa researchers have developed a mathematical model of the Zombie infestation which should help the disaster planners.   Let’s hope the zombie uprising never happens, but it doesn’t hurt to be ready!

Like many Supply Chain Professionals I am now back from summer vacation. Just because you may be physically out of the office does not mean you stop thinking supply chain. I happened to experience all the challenges and successes supply chain has to offer during my time away.

One thing I did on vacation was water-ski for the first time in 5 years. What does this have to do with supply chain? I was more relieved than a professional baseball player who tested negative for steroids to see A535 stock on the shelves the day after my skiing experience! This product didn’t strike me as something that would be seasonal, but I must have skewed their summer forecast with all my aching muscles.

After water-skiing it seemed the best way to relax was with a cocktail on the beach. We decided to try something invented in Italy called a Bellini which required peach schnapps. Panic set in as I scoured the store for the Bellini ingredients and could not find the schnapps. A supply chain nightmare on my vacation, demand with no supply!

The A535 kicked in and since I couldn’t relax I decided to get productive. My task was to clear some small trees at the cottage. I had researched chainsaws on the internet and knew exactly what I wanted and then I was hit with another supply chain disaster. The brand and model I wanted was… here it is… those 3 words we all dread… out of stock! I couldn’t decide if it was good fortune or bad luck that I couldn’t get my hands on alcohol and a chainsaw. As I was getting dressed to come back to work I thought maybe this is why I survived this vacation. I also was thinking, I had not put on a pair of socks in 2 weeks. Are socks seasonal?

This just goes to show you that Supply Chain Professionals have the very demanding and challenging task of making sure we all have what we need, when we need it to enjoy life. Like the offensive line on a football team, they never hear from anyone if the quarterback gets the play off, but one quarterback sack, or 1 empty shelf for the supply chain professional and all is wrong with the world.

Look for a future episode of the Late Late Supply Chain Show dedicated to the unsung heroes of supply chain.

There’s a good article at Supply Excellence entitled “Has the Economic Recovery begun? Are you ready?” that I provided feedback on and wanted to include here as well.

### My comment ###

Having had the privilege of meeting with executives of many manufacturers in the US over the past 12 months, one common dialog seems to be prevalent—first, what should we do differently to avoid a latent response to a future downturn and all the pain that implies, and second, how do we posture for the inevitable recovery while everyone around us appears to be operating with a heightened sense of insecurity. It is easy to say that “responsiveness” is at the heart of both of these problems, however, for many organizations, like the titanic, it is difficult to move quickly regardless of advanced warning of risk.

Given that supply chain is a team sport, what I’ve heard, and would be interested in further commentary from the readers, is that responding to downturn risk is more about individual play; that is, each enterprise must take responsibility for their own responsiveness to a downturn. There may be some that would say “we were just following our customers forecast”. Without a doubt, it is the more agile players that avoid injury.

Preparing for the economic recovery, which I believe has already begun in many sectors, is more about team play. Regardless of how agile and responsive an individual player in the supply chain is, winning big during a recovery requires that everyone on your supply chain team be equally responsive and agile. Leading manufacturers are busy working with their suppliers to establish transparency in supply/demand data, and working hard to improve synchronization through tight collaboration.

The top 3 strategic improvements that would improve an organizations operations performance would be to:

1. Gain control over your data, whether it belongs to you, or partners. If it can adversely, or favorably affect your business, you need the visibility to the data.
2. Establish a robust supply chain surveillance system. Knowing sooner about impending risk or reward on either side of the supply chain is key to breakthrough business performance.
3. Empower people within the supply chain to collaborate. I’m not saying this doesn’t happen, but many people think inter-enterprise collaboration is about system-to-system data exchange, and not the old fashion human collaboration factor.

It was approximately 12 years ago when the company I was working for made the difficult decision to outsource the board manufacturing shop.  After a very trying six month transition, the management team was questioning the wisdom of the move.   Deliveries from the subcontractor were consistently late and quality problems were worse than at any time in recent memory.  Much of these problems were not the direct responsibility of the subcontractor as we were quickly learning how much of the hidden factory had failed to transfer (which was not reflected in the process documentation).     We were at serious risk of missing key revenue goals for the year and our customers were rapidly losing confidence in our delivery capabilities.

I was asked by the site leader to assess exactly how much of our missed revenue was the direct consequence of the outsourcing predicament and what would our year-end performance look like if the situation didn’t improve.  Under normal circumstances, these questions would have been extremely difficult to answer given that the CCA’s were only a subset of the materials required for assembly and the low volume, high mix of our sales activity made general assumptions impractical.   Fortunately, we had recently invested in a response management tool that provided us with some very easy to use simulation capabilities.   In a matter of hours, I was able to not only identify all of the revenue that was impacted by late supplies from the subcontractor, but also create a range of scenarios with different assumptions concerning future performance.     These simulations helped us to rationalize priorities and additional investments in risk mitigation that proved to be instrumental in minimizing the impact to revenue and customer satisfaction.

While this experience made it easy to further promote the value of the simulation tool, many of my peers in supply chain management were significantly less enthusiastic.   They argued that our aerospace business was not very volatile and that we had been profitable and successful at managing the business without any simulation tools for years.

Much has changed in the business climate since those days, with much greater demand volatility driven by both the global market place and the speed of new product introductions.   The combination is the perfect storm for creating sales and operations plans that are quickly at odds with reality.   Never has the need for simulation capabilities been greater and yet I’m still surprised by the number of companies who have not made investments in this area.

In a survey by the Demand Management Solutions Group (DMSG) almost half of the 130 respondents said that less than 25% of the decisions related to demand exceptions were supported by technology solutions.    Other supply chain surveys have consistently highlighted simulation capabilities as one the key business technology gaps needed to improve S&OP performance.    In my experience, companies that are testing the various demand scenarios (and their supply chain risks and capabilities to support those scenarios) are more prepared to react when change does occur.

So when faced with questions about your organizations readiness to address possible variations in the demand or supply picture, if you haven’t yet invested in a simulation tool, you probably can’t fully appreciate  the performance improvements (or risk mitigation) that they can provide.

I was reading Monique Rupert’s blog discussing her six critical success factors for implementing supply chain software solutions.  Having spent most of my career procuring, implementing and maintaining supply chain systems, I have to concur with her points.  I would like to expand on item 3, “Ownership” as I feel is the essential element that enables the others to function efficiently and effectively.

Let’s dissect a typical implementation and look at how “ownership” comes into play.

Pre Implementation (Planning)

Getting the team formed and clearly identifying the problem statement and objective can be a daunting task. A strong executive sponsor, as Monique instructs, needs to articulate a clear vision and purpose while empowering the right people with the right tools  to be successful. Ownership does not speak only of the executive’s role. That would be a mistake if the sponsor was thought of as the owner of this project. Monique points out that everyone must feel ownership to ensure successful adoption.  It also would be a mistake if any one department was perceived as the owner of the solution.  Supply Chain, IT, Finance, HR, Legal and other organizations all have a stake in the successful deployment of supply chain software solutions.

There are tools available that can lay out everyone’s role prior to project execution.  A relationship and responsibilities matrix, (sometimes called a RACI or ARCI matrix) can be used quite effectively to show exactly what is expected of all participants during each phase of the project.  Buy-in is more likely to come when key end-users and other critical stakeholders see they are part of the plan and not an after-thought.  Click here for an example.

A few quotes on the importance of planning:

• “A problem well-defined is half solved” (John Dewey)
• “If I had one hour to save the world I would spend fifty-five minutes defining the problem and only five minutes finding the solution.” (Albert Einstein)

During Implementation (Execution)

In her blog, Monique identifies “Testing” in her list of factors.  The ownership element of testing needs to be defined up front not as a last minute request to “see if it works”. Key super-users and occasional users who know in advance what is expected, and know what the test criteria are far more likely to be successful than an adhoc approach.

Post Implementation (Control)

As the project begins to come to a close, have you ever encountered a project leader who is struggling to pitch ongoing ownership responsibilities?  After all, the project leader may not be the process owner.  Who will manage: ongoing training? change control?  user access to the system?   upgrade and renewal decisions? requests for enhancements?  break fix/help desk process?   These are all vital elements and roles that need to be defined in the planning stage, not post deployment.

I recently came across a Tompkins Associate’s article entitled Seven Best Practices for Supply Chain Execution Implementations and it got me thinking about my experiences in implementing supply chain software and what has made one customer more successful than another.

I believe it boils down to 6 factors:

1. Priorities
2. Decision criteria
3. Ownership
4. Resources
5. Flexibility
6. Testing

1. Priorities
Most companies have many different supply chain business problems they need to solve to run their supply chain more efficiently. Sometimes picking one to work on is very easy, as the problem is so time consuming and causing so much pain that it is the obvious choice.  Therefore, one might assume that just by focusing on one problem that the project scope is limited enough to ensure success. However, my experience has been that even within that one problem there may be many ways to solve it, some easy and some so complex that it would be difficult to maintain and/or would require a significant amount of business process change.

My advice is for customers to walk before they run, try as much as possible to implement the simple, elegant solution rather than the complex solution. Typically, this still provides significant improvement over the customer’s “as is” business process. Once customers find success with the simple solution, then it becomes easier to implement additional functionality as the customer resources are more knowledgeable on the solution and better able to support it.

2. Decision Criteria
Once a customer has decided they have an urgent business problem to solve, the decision to move forward typically comes down to one factor: money. While money is an important gating factor, it should not be the only factor in what gets implemented. Most successful customers have determined that implementing complex supply chain solutions is a journey and not a one-stop trip. Many times, the scope of the customer’s desired solution is too big for their budget, so they scrap the project altogether because the total solution doesn’t fit in their dollar amount. Rather, reduce the scope to fit the budget until customer resources are proficient with the technology and then implement additional functionality over time. In fact, many customers realize they didn’t need all the functionality they initially thought they did.

3. Ownership
Every successful project will be supported by a strong Executive Sponsor who can make decisions quickly and remove any roadblocks for success. This sounds like standard boilerplate for successful projects, however if the Executive Sponsor does not instill the concept of “Ownership,” the project still may fail. The Executive Sponsor needs to ensure that everyone at the customer realizes that the solution is not a vendor solution, but rather “their” solution. Everyone needs to feel ownership of the solution and drive that down to the user level, so the users will adopt the new system as a new way of doing business rather than feeling like they are forced to use a new tool.

4. Resources
This is another common factor in the success of projects, but it deserves to be restated. If a customer cannot commit the appropriate level of subject matter expertise (SME’s) to the project, the project will either die during implementation or fail during user adoption. It can be difficult to get time from key resources, which is why it is important to ensure the scope of the initial project matches the time commitment allocated by key SME’s.

5. Flexibility
Given the complex nature of a company’s supply chain and its ever changing needs, it is important for customers to be flexible when implementing a solution to a business process or processes. As mentioned, a customer decides on the scope of the solution prior to implementing any technology to solve it; however, once a customer begins to design the solution with the technology, they may find the scope should be changed.  This can be due to the fact they are more knowledgeable on the technology or that the customer had a change in their business .

Customers should have the courage to go back to their Executive Sponsor and tell them that they may have found a better way to do things than was originally planned. Many times, customers fear the “Change Request” and view it just as a way for whomever is implementing the solution to get more money. Change Requests on these types of projects should be related to the customer determining there might be a better solution. Customers who are flexible often times find themselves with a better solution than was originally planned.

6. Testing
Testing is extremely critical. All use cases of the solution should be defined by the key users and the test plan should be executed by the key users of the solution. This enables those key users to feel ownership of the solution and really understand how the solution will work in production. Too many times I’ve seen customers not thoroughly document all use cases and expect whomever is implementing the solution to execute the test plan, which typically leads to poor user adoption.

Supply Chain Management Review has an excellent article that describes a world class approach to risk management.  The article describes Cisco’s  Supply Chain Risk Management program and how using this approach Cisco was able to respond to the Chendu earthquake last year (location to several of Cisco’s suppliers) without significant degradation of customer service.

According to the article, Cisco’s Supply Chain Risk Management Program consists of four key elements:

1. Business Continuity Planning (BCP) Program –Document recovery plans and drive resiliency standards across Cisco’s suppliers, partners and logistics providers.
2. Crisis Management – A Cisco team responsible to monitor and respond to global disruptions.
3. Product Resiliency. – Evaluating products to identify vulnerabilities in product design and developing short and  long term plans to resolve issues.
4. Supply Chain Resiliency – Identify nodes in the supply chain with recovery times that are outside of Cisco’s established tolerances and develop corresponding resiliency plans.

As a result of this program Cisco was able to identify the suppliers in the affected area within 24 hours of the Chengu quake.  Within 48 hours, Cisco had a full impact analysis completed including affected supplier sites, parts and products.  As a result, “Cisco was able to respond rapidly, ensure the safety of the extended supply chain, identify the risk exposure to the company and work with its EMS partners to mitigate the risk, thus ensuring no impact to customer shipments.”

To me, the article raises several important lessons;

1. The ability to respond quickly is critical. As the article states; “Even the most thoughtful and thorough crisis management program will not anticipate every aspect of a disruption”. 
2. When an event occurs, once the dust has settled,  go back and look for lessons learned.  Were the processes followed?  Were the right people involved?  What could be done better?  What additional information was needed?   Take the lessons learned and revise the Risk Management processes so that the next time an event occurs those issues don’t recur.
3. Don’t let executive complacency derail the risk management processes.  Use past events to highlight the need and benefit of the supply chain risk management process.  When an event occurs, log the event including the pain / cost avoided due to the risk management process being in place.   Present this to the executive team each time an event occurs.
4. Be proactive about mitigating risk.  Cisco, wherever possible, has two or more sources qualified for each part.  They have dedicated funding to identify and “de-risk” risky parts.
5. Collaboration is key.  A successful Supply Chain risk management process include collaboration within the company and with its external partners.

I strongly encourage you to read this article.  If you do, comment back with your lessons learned!  Do you have hard earned lessons learned from your own experiences?  If so, post those too!

This on-demand radio broadcast hosted by John Hanson interviewing ADR CEO Bill Michels on the subject:  “Why GM’s supply-chain is in a state of ruin”  and in it he discusses several potential root causes behind this failure. One of his key points is that GM’s hard line approach with suppliers sacrificed long term sustainability for short term benefit, basically driving their suppliers out of business.  He mentioned that, over a period of time, if suppliers can’t reinvest profits back into the product or process, they will reach a point of no return, and eventually impact product quality or stifle innovation.

This discussion reminds me of a conversation I wish I had a few years back with my key suppliers. As director of Supply Chain for an aircraft manufacturer I was using typical pressures to reduce the supplier’s price and hadn’t yet learned a win-win approach. Looking back and knowing what I know now this is the hypothetical conversation I could have had with that supplier.

Supplier:  I need to raise my prices 5% due to inflation of ______.

Customer:  Interesting, as I was approaching you about the need to reduce your price to us by 5 % due to customer pressure to reduce our aircraft prices due to this tight economy.

Are we at an Impasse? The traditional approach would be to flex my muscle as the customer, and either through the use of threats or incentives figure out how to get as many marbles from him, assuming there are only so many marbles to go around.  A zero sum game.  Can we break the paradigm that you must raise prices to raise profit?

Customer:  Is this situation really as diametrically opposed as it looks?  Let me ask you a question.  If you had to choose between raising prices and raising profit which would you choose?

He concedes if he was the CEO he would say increasing profit would takes precedence over raising prices.

Customer: Is it conceivable that we can both have what we want?  I get a lower price and you get a higher profit.

Supplier:  If that’s possible, I guess we both win.  But I am skeptical.

Customer:  Ok let’s consider this part you are selling me for let’s say one dollar. If you keep your costs the same and raise your prices to 1.05 and successfully pass those costs to me, we have not created value, all you did was push the cost up the chain and compress my margin. Conversely, if I brow beat you into reducing your price to $0.95 there was no value created either, I just pushed to cost downstream and squeezed your margin. So how can we both win here?

Supplier:  I see your point. If we had a long term partnership view, we probably could consider jointly tackling my downstream costs, and if successful in lowering my costs, I can see the possibility of passing some of the savings back to you in the form of lower prices.  Since this approach improves my margin better than if I simply raised my price, it’s worth considering especially since we both are tackling a common problem rather than having conflicting objectives!  I’m willing to talk about this.

This being a theoretical conversation it may not be as simple as this, but I think if GM had more conversations such as this with their suppliers, they may be in a different position today.  Mr. Michels discussed that a company’s supply chain is part of their competitive profile and so compromising the supplier financially with year over year price reductions without tackling the downstream costs to create value eventually threatens the sustainability of the company itself which, he points out, we have seen at GM.

The white paper “Making the Case for Lean Process Lead-Times” does an excellent job of both describing the opportunity landscape and benefits of a serious effort to apply Lean principles to the administrative side of the Order Fulfillment process.

It is also important to differentiate between what might be strictly waste (anything that doesn’t add value from the customer’s perspective), and what might still be required (or in other words is still essential to ensure that value is delivered). A good example is the process around capturing and confirming the customer requirements. This sub-process is completely unnecessary in a retail store where the customer physically selects the product, but when that same product is going to be purchased on-line or over the phone, a communication occurs that is necessary to ensure that the customer acquires what he wants, but it really won’t increase the value of the product that gets delivered. In fact, any activity between the order and the delivery represents both opportunity and risk.

The opportunity is to reduce that activity to the bare minimum of what is essential and therefore improve the customer experience while minimizing the cost. The risk is that every step in a process typically introduces defect risks that threaten the customer experience and cost management. The challenge then is to engineer the essential elements of the process in a fashion that embraces “mistake proofing” and performs adequate validation on that objective before implementation. It’s never been easier to lose a customer and a single bad experience may mean they will never return.

The other key point of this article is that a Lean Order Fulfillment process must not be just “Change Tolerant”, but “Change Enabled”. The difference between these two conditions are really night and day. Have you ever wanted to change a hotel or car reservation on-line? How easy was it to do? With-out naming names, for years I used one primary car rental company but as the volatility of my travel increased I grew increasingly frustrated over the change process and very often just booked a new reservation rather than canceling the old one. The issue was that the change process required that you have the reservation confirmation ID at hand and there wasn’t any alternatives offered to find the reservation through other means. Think of all the waste that I introduced by not canceling the original reservation. Finally, my guilt and frustration resulted in a change to a different car rental company.

I’m sure that you’ve probably also noticed the increased trend towards encouraging people to order their product or service directly over the internet. This move isn’t just about reducing the amount of human touch time involved in the fulfillment process, there are other enormous advantages including the direct role of the customer in selecting and confirming their desires before the order is placed. On several occasions I’ve placed a phone order and only after receiving the email confirmation did I find that the address or product purchased has been entered incorrectly. The self service side of the internet eliminates many of these risks but it introduces new ones such as;

1. How easy is it for the customer to get information on the specific product or service of interest? I quickly abandon sites that are too complex or slow in this regard.
2. How easy is it to navigate through the ordering process? If I want to make changes, can I do it easily without losing other information I may have already provided?
3. How quickly can I get to the complete cost for the service or product including taxes and shipping?
   Is the product availability confirmed or a projected ship date provided?
4. Once ordered, is it easy to get status?

If you think about the questions above, a poor job in any one of these areas represents a serious risk of customer loss. If done well, it becomes a competitive advantage while simplifying the order and confirmation process.

As the article clearly articulates, efforts to reduce the Order Fulfillment cycle time offer significant benefits to both the customer and company provided they are implemented in fashion that also delivers a good user experience and minimizes any quality risks.

I came across an interesting report from Aberdeen Group on supply chain risk.   What do you think the top cause of supply chain disruption events was from mid 2007 to mid 2008?  If you guessed “Supplier Capacity not meeting demand”, you would be correct.  Now, what do you think the top cause of supply chain disruption was from mid 2008 to mid 2009?  “Reduction in customer demand” according to Aberdeen.  Makes sense when you think about the economic upheavals over the past 12 months, but it’s still interesting to see how the risk factors have changed.   An additional factor showed up in the report as well “Key supplier’s financial standing deteriorated” was identified by one in five companies as a supply chain disruption event.

The Aberdeen report goes on to provide some good recommendations around formalizing the supply chain risk management process If you are interested I recommend you follow the link to the Aberdeen report and read them in their proper context.  To me, the key point from the report is the importance of reviewing your supply chain risk management assessment and mitigation strategies on a regular basis.  When you are in a period of high demand / growth, your focus is typically on managing supply shortfalls.  You want to make sure that supply disruptions won’t impact your ability to deliver your product.  When you are in a period of recession, the focus switches to mitigating the impact of customers cancelling orders, overstated forecasts and excess inventory.  If your risk management assessment and strategy was done in a growth period, you could be blindsided by supply chain disruption events when the economy retracts.   Likewise, If you  have recently reviewed and revised your supply chain strategy (in a recessionary mode), be prepared to do it again as the economy starts to pick up steam again.

There is a correlation between the supply / demand factors that influence supply chain risk and the factors that influence Sales and Operations decisions.   This is why many companies benefit from adding a high level supply chain risk management review to their sales and operations process.  I’d encourage you to do this as well.  Add an agenda item to the sales and operations meeting to review the assumptions and focus of your risk management strategy given the current demand / supply situation.  If something has changed, trigger a reassessment of your supply chain risk factors.  It may result in some extra work, but better that then being blind-sided by supply chain disruptions.

How do you reflect the changing supply / demand environment in your supply chain risk assessment?   Leave a comment and share your knowledge.