Archive for December, 2011

The Supply Chain Manager as Santa Claus!

Published December 22nd, 2011 by Janice Kakazu 1 Comment

I just re-read a great blog post from last holiday season titled, “The Supply Chain Manager as Super-Hero” posted to the Supply Chain Expert Community.  Visions of Spiderman and the Green Hornet raced through my head, but given that we are in the holiday season, another vision also came rushing unbidden to the forefront – the supply chain manager as Santa Claus! In order to fight the perception that supply chain managers labor in obscurity, buried deep in the bowels of a manufacturing organization in a ‘decidedly unglamorous’ job. I’m thinking we need to promote the thought  of supply chain managers as Santa Claus! Ie. heavily publicized, very visible to all, making sure that all those ‘gifts’ get to the right place at the right time, and using his or her skills to balance the needs of all! With that in mind, here’s an ode to the supply chain manager as Santa Claus!

‘Twas the night before Christmas, when all through the plant

Not a creature was stirring, not even an ant.

The shipments were stacked by the loading dock with care,

In hopes that FedEx soon would be there;

The supply chain planners were nestled all snug in their beds,

While visions of on-time shipments danced in their heads;

With my dog on her cushion and a blanket on my lap,

I’d just settled down for a long winter’s nap,

When there on my nightstand there arose such a clatter,

I sprang from the bed to see what was the matter.

Away to the Blackberry I flew like a flash,

As if I was running the 100 yard dash.

The soft blue light from the screen made a glow

Giving the lustre of mid-day to my face below,

When, what to my wondering eyes should appear,

But a miniature sentence, with emoticons so dear,

With a short little message, so lively and quick,

I knew in a moment that I wouldn’t get sick.

More rapid than hand-writing the words they came,

And they jumped off the screen listing name after name;

“To Boston, to NY, to San Jose too!

To London, to Shanghai, to Kalamazoo!

To the top of the market! To the top of the mall!

They shipped away! Shipped away! Shipped away all!”

As two sheets that before the wind flies,

When they meet with an obstacle, mount to the skies,

Up to 35,000 feet the planes they flew,

With a cargo of products, and  commercial packing slips too.

And then of a sudden I heard on the roof

The strange sounds of what I thought was a goof.

As I turned off the Blackberry and was turning around,

Down the chimney the supply chain manager came with a bound.

He was in business casual, from his head to his foot,

And his clothes were not tarnished with a speck of soot;

A bundle of metrics he held in his hands

Developed from information gathered from faraway lands.

The end of a laser pen he held tight in his teeth,

And the light it encircled his charts like a wreath;

He had inventory, on-time shipments, and cost savings to go;

With targets for all, so the executives would know.

He was happy and sane, a right savvy spry elf;

And I laughed when I saw him, in spite of myself;

A grand sweep of the arm and a nod of his head,

Soon gave me to know I had nothing to dread;

He spoke not a word, but went straight to his work,

All the metrics were green, no duty was shirked.

And laying his charts near his portfolio to close,

And giving a nod, up the chimney he rose;

He sprang to the Express Line, to his team gave a whistle,

Into the frequent flier  world he flew like the down of a thistle.

But I heard him exclaim, ere he drove out of sight,

“Happy planning to all, and to all a good-night.”

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Posted in General News

TPOP – Medium-well please

Published December 21st, 2011 by Ray Karaffa 2 Comments

Back in 1981, I was hired as an Inventory Control Analyst (Construction Supplies Scheduler) by the largest public utility supplying electric and natural gas to Arizona located in Phoenix.  My initial duties involved the scheduling of all of the electrical transformers and natural gas supplies necessary for repair and new construction the utility was involved in.

The company was using a computerized standard Reorder Point mainframe software system called MMIS (Materials Management Information System).  Yes, my job was to “Set em and Forget em” then deal with the aftermath (stock outs, inflated inventory) of thousands of parts, much like the manual standard reorder points I discussed in a past blog.

Our customer service goal that we strived for was 95 percent.  I was doing fairly well with my parts hovering around that goal so when one of the analysts responsible for the scheduling of the overhead and underground cable was tracking in at 80 percent, my boss, the Inventory Control Manager ,invited me into his office and assigned the cable scheduling to me.

He explained to me that although there are only 26 different cable part numbers, these were critical parts.  A stock out on cable meant that union workers went home until the cable came in.  He also noted that although we only use, at most, about $300,000 worth of cable per month, we have to maintain about $3,500,000 of cable inventory on hand to achieve the 95 percent customer service goal.  I thought to myself that this is typical when you use classic reorder points that falsely assume steady continuous demand.  That’s over ten times the actual inventory dollars that you need.

It was in May of my second year of employment with the company and my boss asked me if I could get the customer service level back up to at least 95 percent by the end of the year.  Being the cocky young puppy I was back in those days, I replied that “I don’t see any problem with 100 percent service level and an on hand inventory dollar reduction of at least a million dollars”.  To which he replied, “You’re on!  I’ll bet you a steak dinner on January 2nd that you can’t do both.”  I felt that to be a pretty safe bet.

I realized that what I had to do with those 26 part numbers was to take them off of the standard reorder points and time phase them using a TPOP (Time Phased Order Point).  Time phasing is what standard reorder points are lacking.  TPOP has the capability to signal when reschedules are required to grind down your projected available to zero which indicates an exact match of supply and demand above safety stock.  Ollie Wight in his book, Production and Inventory Management in the Computer Age describes TPOP as “simply the MRP logic used for independent demand items.”

Please see below how I manually set up these 26 overhead and underground cables on TPOP.  I obtained  history from MMIS which had up to ten years of past history including seasonality.  This was a very good source that I used as input for my forecasting of Gross Requirements.  I would monitor the history of these and every two or three weeks I would readjust my forecast to current history.

The first month of June, inventory dollars rose from $3,500,000 to $3,750,000 but because of the rescheduling capability of TPOP, I was able to get the customer service level up to 100 percent.  I was able to maintain the 100 percent customer service level every month through December of that year.

Every month after June, inventory dollars did fall dramatically. At the end of November, I was well on my way to enjoying that steak since inventory dollars had dropped by about $2,000,000.  By the end of December of that year the inventory dollars plummeted from $3,500,000 in June to around $487,000.  That’s over a $3,000,000 reduction of unnecessary inventory.

The additional drop in inventory dollars was helped along by an ice storm that hit the El Paso, Texas area in early December.  The utility company in El Paso had called up my boss stating that they were in an emergency situation with lots of power lines down and they didn’t have enough overhead cable in stock to repair all of the downed lines.  They wondered if we could help them out with a loan of cable.

With my manual time phased dashboard capability, I had a complete view of the on hand cable I could relinquish immediately and was able to work with my cable suppliers to redirect cable commitment from my purchase orders to the El Paso utility’s requirements.  The Inventory Control Manager of the El Paso utility expressed awe and appreciation that we could cover their total emergency needs with on hand inventory and purchase order adjustments.

On the morning of January 2nd of the following year, my boss walked into my cubicle and said:  “John the warehouse supervisor over at the cable storage facility called me and he was very shook up”.  I replied:  “What’s he got to be shook up about?  He’s got all the cable he needs with 100 percent customer service level.”  He then walked out of my cubicle saying nothing more except “Give him a call”.

Confused, I got right on the phone and called John at the warehouse.  I asked him what was he so shook up about.  He said:  “Ray, it’s the craziest darn thing I have ever seen.  I have all of the vendor’s cable delivery trucks lined up on one side of the road leading to the warehouse and on the other side of the road I have all of the crew’s construction trucks awaiting cable.  We have hardly any cable in the storage lot and I have guys on forklifts on the road transferring spools of cable directly from the delivery trucks to the construction crew trucks.”  He did admit, however, that he had all of the cable he needed.

I went over to see this spectacle and sure enough, three or four forklifts were busy transferring the large spools of cable from flatbed delivery trucks to the construction crew’s trucks.  It filled me with a great sense of accomplishment to see the fruits of my cubicle efforts in action.

Later that day, my boss took me to a great steakhouse for lunch and as the waiter was walking over to our table, he asked me how I would like my Rib-Eye?  I answered:  “medium-well please”.

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Posted in Inventory management

Challenges to setting up a successful supply chain in India

Published December 19th, 2011 by Pradeep Chadha 2 Comments

India is $1.6 trillion dollar economy which is growing at an average annual rate of 7.5 percent. No global corporation can ignore that. To do business successfully in that geography, their Indian business units and partners must be able to overcome the challenges from several domains: supply chain, regulatory and socio- cultural. I am going to write about the first one here.

Recently I came across this post where the author has given a very good perspective of supply chain issues, mainly infrastructure (unpaved roads), taxation (tax on movement of goods) and has an interesting takeaway in the end, “Traditional methods of supply chain design and management do not always apply,” and I fully agree with that statement.

Let’s look at couple of success stories. In spite of challenges, there exist very good examples of six sigma supply chain setups in India, like Dabbawalas, which operates in the most populous city of India, Mumbai. Dabbawalas is a company which picks up and delivers fresh and home cooked lunch to office goers. It’s a highly specialized business service that involves various lunch box carriers throughout the city and they do close to 200K deliveries a day with less than one error in 6-million (if you are vegetarian you can be assured you never end up with chicken curry lunch). Readers may refer to Wikipedia for more details on their business and for more technical insight they may read the Harvard Business Review case study on in its success, and how FedEx learnt from it for better operations of its Indian BU.

Another good example of success in setting up a supply chain is major auto manufacturer, Maruti. By establishing close collaboration with its suppliers, it overcame typical challenges posed in the country.  Here’s a very interesting article in CIO India titled: How Maruti Identified a Smart Supply Chain System

Lack of a good infrastructure makes getting the raw materials and carrying out the finished goods distribution very complex ― there is more than an average number of distribution points or warehouses a product has to go through before reaching the end user. The current state of infrastructure in India forces companies to use several modes of transportation in the value delivery process. The highways and rail systems do not reach major portion of the country, and a product has to travel on train, truck, or auto/cycle rickshaw before landing into the end customer’s hands. Every time the mode of transportation changes, there is handling, sorting, and storage involved – this make the supply chain very complex and decreases the reliability of whole chain.

In my opinion, to have more reliable and successful supply chain setups in India corporations should keep these things in mind:

  1. Visibility –   As the number of warehouses and distribution points grow, better visibility into your network becomes more necessary for customer service and a competitive edge. If youknow what is where, then you can control it.  Systems should be able to do all kinds of simulation for exceptions, so decisions can be made quickly.
  2. Collaboration – As cited in Maruti example, the way to beat the supply chain challenges was to collaborate with suppliers and distributors. This makes the supply chain issue not a company issue, but an issue of the entire value chain – from supplier to end product distributor – and everyone tries to overcome it.
  3. Simplification – Keep it simple, in fact, very simple. Use a system which is clear to understand, not only by your employees, but also by your customers and suppliers. India is a country of several languages and several cultures. There is huge risk of “lost in translation” if anything is complex. Use visual tools as much as possible.
  4. Flexibility – Pick a supply chain solution which can work with several applications. When collaborating with local suppliers and distributors, it should be no surprise to discover that some of them still operate on dated custom-built systems. The supply chain solution should be flexible enough to work with all of them.
  5. Mobile Phones – This is one technology that almost everyone has access to. Access to them is very inexpensive, and most people have them (over 800 million out of 1.2 billion in India).  Any supply chain strategy should leverage this, similar to how Marketing firms have used mobile phones very effectively with SMS campaigns.

World class Supply chain is the mantra for building competitive advantage; having good understanding of country specific needs and having solutions for them will enable corporation to be world class across all geographies.

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Posted in Supply chain management

Control Tower Concepts: Control towers are all about orchestration

Published December 15th, 2011 by Trevor Miles @milesahead 0 Comments

As our Doug Colbeth, our CEO, wrote recently

Companies must look at their supply chains as having a “cause and effect” relationship with other key parts of their business. It is in the supply chain and its related areas where companies can effectively address the three key challenges of any business; financial performance, customer satisfaction, and corporate risk.

There are several key points in Doug’s statement, but the one I want to highlight is the cause and effect relationship to other key parts of business.  While gaining control of one’s own operations is important, in today’s outsourced supply chain, the cause and effect relationship often spans across multiple tiers.  This multi-tier cause and effect relationship is fairly well described and explained through concepts such as supply chain visibility, and remains an issue for many multi-national organizations, let alone multi-tier supply chains. Over five years ago, Aberdeen Group in a Benchmark report titled, “Industry Priorities for Visibility, B2B Collaboration, Trade Compliance, and Risk Management” identified many of these issues.  As late as February 2011, Aberdeen Group published another report titled “Supply Chain Visibility Excellence” in which the greatest pressure to improve supply chain visibility is “Growing global operations/complexity”.  It ain’t goin’ away any time soon.

But Doug is making a different point (I think). My interpretation of Doug’s comment is that a company’s operations functions have to operate in a coordinated or orchestrated fashion in order to drive the best financial performance.  While most of our focus is in manufacturing, where the issue is perhaps most acute, many other sectors can benefit from Doug’s advice.

As an example of the need for orchestration between functions, how many project management systems provide a mechanism to plan materials in conjunction with resource assignment and task dependencies?  And yet in many engineer-to-order (ETO) environments payment is based upon milestone achievement so any slippage because of material shortage has a big impact on the top line.  And of course on the bottom line too because while resources can be assigned new tasks, there is always lost productivity when they are reassigned.  And of course it isn’t that no orchestration between functions happens today, it’s just that very little of it is fact based and there is no opportunity to perform what-if analysis of different scenarios to evaluate the impact on financial performance, customer satisfaction, and operational risk.

So what is orchestration? Jane Barrett of Gartner wrote in a Supply Chain Brain article titled “The Secret Sauce to Supply Chain Orchestration” that:

Orchestration describes a value-driven organization that is consciously excellent. This ability to make conscious choices and to understand the trade-offs comes from advanced capabilities in information management, demand sensing and shaping, cost-to-serve analysis, end-to-end segmentation, simulation and analytics. It requires strong collaboration internally and externally.

The on-line Merriam-Webster dictionary defines “orchestrate” as:


1 .      a) to compose or arrange (music) for an orchestra

b) to provide with orchestration <orchestrate a ballet>

2.  to arrange or combine so as to achieve a desired or maximum effect

While clearly it is the second definition that is more directly relevant to the supply chain, or operations more broadly, we should not lose sight of the idiomatic value of the first definition.  A lot of the value of a control tower comes from being able to ‘arrange’ the processes and people in a harmonious whole.  The beauty of an orchestra or rock band comes from the manner in which the different instruments are played collectively. If any one part of the orchestra is out of tune or playing too loudly/quietly the sound of the entire orchestra is affected, not just of that instrument section. In order to do this, every orchestra must have a conductor.  Undoubtedly the orchestra could get through the piece without a conductor, but they do so with far less effort and with a superior outcome if they do use a conductor.  Key aspects of the conductor’s role is to interpret the piece, keep each section playing in time, and to ensure the correct sound balance across sections.

A control tower is equivalent to the conductor in operations orchestration, which ensures that all the functions are operating in harmony. This is what Doug is referring to in his blog: Making sure that not only are the functions sharing information, but that they are operating in unison to achieve common goals.  And this is where Jane Barrett’s capabilities of simulation and analytics come into play.  While undoubtedly on concert night the orchestra needs to play flawlessly by following the conductors lead, it is the practice sessions in which the conductor will have experimented, sometimes with individual sections of the orchestra, and even during the dress rehearsal.  This experimentation is vital for the conductor to achieve the right sound.

Without the equivalent “what-if” capabilities in supply chain, and operations more generally, it is extremely difficult to gain actionable insights and to reduce corporate risk.  Without a doubt cross-functional visibility, formal meetings, and standard reports are foundational requirements, the real value to operations is the ability to evaluate alternative scenarios quickly and collaboratively.

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Posted in Control tower, Control Tower Concepts, Milesahead

Don’t put all your supply chain eggs in one basket

Published December 14th, 2011 by John Westerveld 0 Comments

As those of you who have read this blog may have gathered…I’m a bit of a geek.  I recently decided that my home computer system needed replacement so I did what any geek would do…I gathered parts over several weeks and built myself a new computer.  While I was in that mode, I was monitoring the prices of various computer components, so I noticed firsthand the incredible increases in the price of computer hard drives.

As most know, Thailand has been hit hard by flooding during this year’s monsoon season. There has been a horrible human cost with hundreds dead, and millions of people affected. What many don’t know is that Thailand is a major manufacturer of hard drives and major brands like Seagate and Western Digital have factories there…thus the price increase for hard drives.  Not only is Thailand a primary producer of hard drives, they also produce components that go into hard drives, so even companies that don’t manufacture in Thailand are affected because they can’t get components.

As you would expect, the hard drive shortage is affecting upstream manufacturers too.  Many companies only have a few weeks of supply on hand and are seeing shipments impacted because they can’t get components.   Fortunately, it looks like the flood waters are starting to recede and some hard drive manufactures will start producing again this month, although forecasts show that high hard drive prices and shortages will continue well into 2012.

From a supply chain perspective, these events have again highlighted the need for companies to implement and maintain a supply chain risk management process. There is much content on risk management, but there are a few key points relevant to what we’ve seen recently;

  • Identify key components and where they come from.  If you have multiple suppliers for these components, GREAT!  If these suppliers are in the same geographic region, however, you still can be at risk.
  • For your key components, be sure to look at where your suppliers are getting their components from.  Thailand also has significant hard drive component manufacturers that supply hard drive manufacturers around the world.  Even if you source from different hard drive manufacturers in different regions, they all may get their components from a single supplier or region.
  • Review your key components on a regular basis.  Many companies do this as part of their S&OP cycle as there is a logical affinity between risk management and S&OP.
  • Make sure that you have the tools in place to be able to quickly assess and respond to a significant event like the Thailand flooding. ERP systems and Excel can’t do this fast enough to make a difference.  You need a tool that can model your entire supply chain, allow simulation and reporting to be able to get on top of a fast moving situation like this.

2011 has been another record year for major events with supply chain impact.  Japan is still recovering from the effects of the earthquake and tsunami.  The flooding in Thailand has impacted other manufacturing segments besides hard drives.  Companies operating on a global scale must look at how a regional event could impact their  supply chain.

For further reading, I (and others) have covered Supply Chain Risk Management in some detail over the past couple of years, including a white paper titled Essential Characteristics of a supply chain risk management strategy.  Has your company been impacted by the Japan earthquake or the Thailand floods?   Comment back and let us know

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Posted in Best practices, Supply chain risk management

Do you believe in supply chain magic?

Published December 12th, 2011 by Ray Karaffa 2 Comments

I’m not talking about the smoke and mirrors of a Las Vegas act.  I’m talking about real magic where parts and materials suddenly appear at the right quantity, the right place and at the right time.  I’m talking about the two-bin system, reorder points and statistical forecast models.

It has been said that Henry Ford used the two-bin system in the early production of his automobiles.  As you know, each bin had to be equal in size to hold the quantity used during the lead time of the part with a little extra for unforeseen emergencies.  When the first bin was emptied, a reorder card was sent to Purchasing to reorder another bins worth.

The two-bin system assumed, falsely, that all demand quantity was, for the most part, steady and continuous.  Because of this false assumption, there were many problems with stock shortages and inflated inventories.  There was also a problem where you had to stock lots and lots of different sized bins to operate such a system.

In the 1930’s some mathematicians worked to eliminate the “lots of different bins” problem by devising the Reorder Point quantity formula.  Here they said the reorder point quantity on hand was equal to the demand during lead time plus some added safety stock (RP = DLT + SS).  This formula allowed the two-bin system to still be used and stocked on any shelf without the bin problem but still falsely assumed all demand to be steady and continuous while still generating stock outs and inflating inventory levels.

Can you see the magic in the two-bin Reorder Point formula?  A lot of people can.  Reorder points are still used in many of the new sophisticated ERP software packages today.  Heck, I even read a published article where one author thought that MRP didn’t work for whatever reason and suggested we should do away with MRP in favor of a 3-Bin Kanban with two bins on the shop floor and one at the supplier.  After reading this I remembered the old saying that “Those ignorant of history are doomed to repeat it”.

By now you can figure out that I don’t believe in two-bin, reorder point magic, however I do believe in statistical forecast models.  I believe that all forecast models are wrong.  I don’t like to forecast at all but I realize that sometimes you just have to.  I’ve been trying to come up with a forecast model for the six numbers of the Powerball drawing for years.  When I come up with an accurate model, I’ll let you know.

Forecasts are simply guesses requiring constant vigilance and adjustments to history.

Two-bin reorder points assume parts are totally independent of each other so you have to forecast for every single part.  That’s a lot of guessing and adjustments to history which requires a lot of maintenance.

The MRP planning process was devised to avoid most of the smoke and mirrors hocus pocus by a dramatic reduction in the amount of forecasting (guessing) you have to do.  MRP has product structure.  The idea here is only to guess where you have to (Independent Demand) and derive (Dependent) demand from those fewer guesses via a product structure therefore requiring much less maintenance.

When you need reorder points for “C” items use the MRP generated Time Phased Order Point (TPOP) which utilizes independent, derived, unsteady and discontinuous demand, a future blog topic of mine.

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Posted in Best practices, Supply chain management

Control Tower Concepts: Putting the focus on the “People” in “People, Process, and Technology”

Published December 8th, 2011 by Kirk Munroe 1 Comment

To create and sustain change, the discussion has revolved around people, process and technology (software in this case) since the beginning of the information age.  What is interesting about this discussion is that almost all of the focus and discussion surrounds the process and the software, or at best, talks about each of these as equally important cornerstones of the equation.

Stepping back from the triad, and taking an objective view, the process and software pieces only really exist to make people more effective.  To go a step further, the process and software should exist to make the people work together more effectively.  You can think of this as the promise of collective intelligence of an enterprise.  In “executive speak”, you can think of this as fulfilling the promise of having the entire organization actually executing the strategy across all functions, on behalf of the organization as a whole.

Collapsing planning and execution (real-time response management to deviations from the plan) into a single integrated process and breaking down the silos between various functions, departments, and trading partners, are key tenets of an enterprise control tower solution.

Andy Coldrick, working with Dick Ling, advanced Dick’s original definition and process of S&OP in the 1990’s to introduce the concept of integrated reconciliation – the key to driving the cross-functional, collaborative process at the heart of successful S&OP.  In the past decade, they have advanced an implementation methodology to drive cross-functional collaboration to truly allow strategic and sales and operations planning to become an execution-driven activity.

Andy and I will be presenting a blueprint for enabling people to realize the promise of strategy execution on Tuesday, December 13th.

Register now for the webcast: Orchestrating Success in Sales and Operations Planning by Driving Cross-functional Collaboration with RapidResponse Control Tower

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Posted in Best practices, Control tower, Control Tower Concepts

The “miles ahead” vision of integrated supply chain planning and response management

Published December 6th, 2011 by Trevor Miles @milesahead 1 Comment

How uncertainty changes our perspective of the purpose of planning has been the central theme of many of my blogs over the past 3.5 years while at Kinaxis. There are changes that are taking place in the supply chain space driven by the understanding that plans are a guess of what will happen and the likelihood that the guesses/assumptions were correct is fairly low.

I just the past four weeks I have talked to a number of leading electronics companies that are grappling with the idea that planning should be performed in parallel across functions, rather than sequentially.  If we are to collapse the planning/decision process lead times in our supply chains, we will have to adopt simultaneous or parallel processes, which in turn will lead to different organizational structures and systems that focus on collaborative decision making that focuses on human intelligence and machine speed.

These are all themes that are captured in the new eBook, Miles Ahead: The “miles ahead” vision of integrated supply chain planning and response management which is compilation of a number of my key blogs. The core concept is that planning is not enough, or, stated differently, planning is only the beginning. Making a promise to a customer is difficult enough. Keeping that promise is often immeasurably more difficult, especially in environments that have order-to-delivery lead times longer than a day or two. In the eBook I challenge several standard assumptions and approaches to planning and make some suggestions on how planning can be approached differently.  I’d really like to get your feedback on the ideas and concepts discussed in the eBook.

Download your copy here:

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Posted in Milesahead