Archive for April, 2012

Is Just-in-Time Out of Time?

Published April 30th, 2012 by John Westerveld 2 Comments

As if earthquakes, tsunamis and floods aren’t enough, now car companies need to deal with a worldwide shortage of PA-12, a special nylon used by almost all auto companies. According to Businessweek, PA-12 (polyamide resin) is a form of nylon that is used for plastic pipes, tubes and hoses to carry vapors, fuels and other liquids. It also used in plastics used in car seats. An explosion at the end of March at a chemical plant in Germany knocked one of the few companies that manufacture this resin out of production. Not only does this company (Evonik) manufacture this chemical, it also manufactures almost 70% of CDT (cyclododecatriene) which is used by other companies to make PA-12. Ouch.

What makes this worse is that car companies following the tenants of just-in-time have very little inventory, especially of component parts. Just-in-time practices consider inventory to be one of the wastes that should be relentlessly targeted and eliminated. This has resulted in billions of dollars of savings due to reduced inventory levels and more streamlined operations. However, that inventory reduction means that there is no buffer to carry companies when a significant supply disruption occurs.

The explosion at the plant in Germany, the earthquake and resulting tsunami in Japan, and the floods in Thailand are causing automakers to rethink their approach to just-in-time. The world has changed since just-in-time was developed by Toyota in the 1970s. Factors like increasing globalization, reliance on specialized parts (where one factory makes a large percentage of the world’s supply) have increased the risk associated with the zero inventory principle.

Having lived through several Lean implementations, I used to be a strong believer in zero inventories. But I’ve come to realize that while inventory reduction is still a goal to be striven for; the RIGHT amount of inventory is going to be some quantity greater than zero. I’m not going to go into mathematical theories about how much. I’d probably get most of it wrong anyway. What I will say is that you need to look at your component part sourcing and pick the right amount of inventory for those components;

  • Do you have parts that are sourced through a single supplier? When doing this assessment, don’t just look at the supplier. If you can, look at the supplier’s supplier. With the flood in Thailand, not only was the drive assembly impacted, but several component part manufacturers were co-located with the assemblers. When the flood hit the assembly plant, the component plant got hit to. Assembly plants not affected by the flood were still impacted because they couldn’t get parts.
  • If you have multiple sources, are those sources in the same geographic area? If an event like the Japan earthquake were to happen, it is likely that both suppliers would be taken down.
  • If your source is on the other side of the world, what would happen if there was a major interruption to shipping? A large storm, a significant event at a busy port could delay the shipment of goods by weeks.

If you answer yes to any of these questions, then maybe you should consider holding more inventory on these components. Even if you have multiple sources, you may need to hold enough inventory to cover the lead time needed to get these other sources ramped up to cover the full demand. This might be a good exercise for the Chaos monkey. (Pick a part and simulate what would happen if you couldn’t get this part for a week…or a month…or 3 months). Another related exercise would be to simulate the effect of disabling all suppliers in a given region for 2 months. What would be the impact on your supply chain? How would you recover?

I certainly don’t recommend drifting back to the bad old days of building inventory for the sake of building inventory. I also still think that unnecessary inventory is waste. However, there is the right quantity of inventory for each part and those that can figure it out will be better able to survive a significant supply chain event.

Are you planning on changing your inventory strategies as a result of recent events? If so, comment back and let us know.

Posted in Inventory management, Lean manufacturing, Supply chain risk management


Top 10 Reasons Why My Spouse Is Better Than My Supply Chain

Published April 27th, 2012 by Bill DuBois 0 Comments

My wife and I were discussing some of the recent blog posts on the 21st Century Supply Chain, and although she agreed with Andy’s blog, “Supply Chain Isn’t Sexy,” she completely disagreed with the Top Ten Reasons Why Supply Chains Are Better than Sex. As a result, I came up with the…supply chain

Top 10 Reasons Why My Spouse Is Better Than My Supply Chain:

10. If a supply chain is having a problem, it won’t call another supply chain to help solve it.

9. Your supply chain doesn’t know where you put the remote.

8. Supply chains don’t pretend to be happy.

7. No matter how good your supply chain is, it will never have breakfast and a paper ready for you on Sunday morning.

6. Supply chain software is still more expensive than diamonds.

5. A forecast is usually wrong, my wife is usually right.

4. My supply chain doesn’t know what kind of beer I drink.

3. When I’m late, my supply chain doesn’t forgive me.

2. My supply chain doesn’t rub my shoulders when my hockey team loses a Stanley Cup playoff game.

1. My supply chain won’t call my mom when I’m sick.

Do you have any reasons to add to the list? Share them in the comments! And be sure to check out some more supply chain comedy on the “Just for Laughs” section of the Supply Chain Expert Community!

Posted in Supply chain comedy, Supply chain management


SCM30: If I could change SCM, I would call it…

Published April 20th, 2012 by Kirk Munroe 1 Comment

SCMWelcome to the third blog post in the SCM30 series.

Though supply chain management concepts have been in practice since the turn of the last century, it is widely agreed that the term was created by Keith Oliver in 1982 – 30 years ago.  This post in our series focuses precisely on that – the term ‘supply chain management’.

There is a posting in the Supply Chain Expert Community discussion forum that asks the question: If you could re-name SCM today, would you? If so, what would it be?  While others have weighed in with some interesting thoughts, here are mine…

If I could change SCM, I would call it SCE … Supply Chain Excellence (or Effectiveness – either work for me)

First off, I am not a long standing SCM expert.  Thought we should get that on the table.  However, I do have a long history of working with analytics-based enterprise software to help companies make better business decisions, to better achieve corporate strategy.  With this background, the word “management” carries a connotation that screams “drive out costs at all costs.”

To make sure I am not losing it, I went to my friends at Dictionary.com and found: the act or manner of managing;  handling, direction, or control.  The word “control” jumped out at me, so I following the rabbit to find: to exercise restraint or direction over; dominate; command.   If I am being balanced and fair, there are other definitions of management that are not so dictatorial, but the connotation still holds for me.

In short, I don’t think SCM because management implies execution alone and not strategy.  Execution is certainly a big part of the equation, but I would like to think that supply chains, and the software that enables them, can be so much more.

With that out of the way, if we look at the three real traditional strategies a company can have (leaving out “system lock-in” as a viable option for most businesses).  First, we have lowest cost provider.  Second, product or service innovator.  Third, customer intimacy.

In this first case, it is mostly about managing out costs or optimizing the supply chain, but in the latter two cases, clearly the supply chain has to be thought of as an essential component of the corporate strategy.  It is hard to think about creating innovative products if you think of your supply chain as a low-cost assembly line.  It is even harder to think about delighting your customer without considering product customization, order flexibility, and so many more factors from order to delivery that are key to the supply chain.

I am not going as far as saying we should be calling it SCS (Supply Chain Strategy) because it is equal parts strategy AND execution.  There might be a better word than Excellence or Effectiveness, but I hope the point is clear and why the M in SCM doesn’t work for me.

Would love to hear your thoughts on this topic – either here on the blog or join the discussion on the community.

Posted in SCM30, Supply chain management


Global capacity management – a make or break competency for automotive manufacturers

Published April 19th, 2012 by Lori Smith 0 Comments

Today, Kinaxis is hosting an event in Dearborn for automotive supply chain and operations executives.  This forum will provide a practitioner’s point of view of the process and technology aspects of managing global supply capacity across the multi-tiered supply chain. Yep, it’s a hot topic right now.

Global capacity planning and constraint management have become critical business competencies and the implications of not doing them well can be harsh.  In today’s world of constrained supply, automotive manufacturing executives need to make tough decisions about how scarce supply will be utilized. If they are not able to understand the tradeoffs involved in various supply allocation scenarios, the resulting decisions will be less than optimal at best, and significantly detrimental to the business at worst. Hence, there is an increased focus on how to get global capacity management right.

Fittingly, Kinaxis has produced a whitepaper on this topic. The paper proposes:capacity

  • an integrated approach to global capacity management that incorporates capacity planning, capacity monitoring, and constraint management to address both global and regional requirements
  • key characteristics of a global suppy chain planning, monitoring, and response platform that will enable this to be done effectively

For some good insights and recomendations, download it today.

Posted in Supply chain management


Innovation in the Cloud: Beyond ERP

Published April 17th, 2012 by Trevor Miles @milesahead 6 Comments

An interesting set of articles came out over the past few weeks that look at the future direction of ERP and supply chain management. While these two solutions spaces are not the same, there is an overlap—in terms of functionality and also because the big ERP vendors such as SAP and Oracle have both developed supply chain management (SCM) solutions and have bought or partnered with other solution vendors in the SCM space.

Let’s look at the view from the ERP perspective first. In an article in the Future-Tech section of Toolbox.com titled “Where will ERP be in 2 years?”, the author positions ERP in the following manner:

“ERP is used to track important data — usually related in some way to an organization’s financial performance —across the enterprise.”

The important term is “track,” implying governance and control of financial information. Although ERP does more than this, the comment draws attention to transactional level activity—taking a sales order, processing payment, issuing a purchase order, etc.—and governance of financial transactions as the primary focus of ERP.

Michael Krigsman, CEO of Asuret, commented in the article that:ERP

“Simplified ERP implementations are going to become an essential factor because the market is becoming less tolerant of these big, expensive, monolithic implementations of traditional ERP.”

 

I’m waiting with bated breath, because where governance and control are concerned, I cannot see the CIO or regulatory bodies reducing their need for risk avoidance.

Where things begin to get more interesting is when Krigsman comments that:

“Cloud-based ERP services will also evolve in the future to become more integrated both with other clouds and with installed ERP systems. Krigsman expects to see more vendors that offer pieces of ERP, which will necessarily lead to cloud-to-cloud integrations. This will allow customers to weave together their own highly tailored system from different vendors that best suits their organization and business processes. This type of interoperability between cloud services will also eliminate the need for companies to install middleware and execute complicated programming to make third-party modules work with an existing ERP system.”

In other words, the days of monolithic “we do everything” ERP systems may be coming to an end with innovation in delivery and interoperability, and each supplied by cloud services, typically outside of the ERP vendors.

Separating Transactions from Decision Support

Where this has a direct impact on supply chain management is in Krigman’s comment that:

“…predictive analytics, such as recommendation engines, will also be important to the future of ERP, enabled by faster analytics.”

 

The very heart of any SCM organization, and its associated solutions, is the prediction of future operational and financial performance by linking demand anticipation (forecast) and satisfaction (actual orders) to the supply of materials to satisfy the orders. This, in turn, requires the anticipation and provisioning of resources to convert raw materials into finished goods through complex and multi-tier, multi-continent manufacturing processes using bills-of-material (BOM), bills-of-distribution, and routings. Naturally, there is also the conversion of independent demand (sales orders and forecast) into dependent demands, which drive the purchase of raw materials through purchase orders and other procurement mechanisms using the BOMs, routings, and associated lead times and sourcing rules.

In other words, SCM has been doing “predictive analytics” for years.

What has changed over the past 2-3 years is the increased importance of what Gartner calls “demand translation.” This is the realization that a plan is never 100% correct, and therefore early detection of the difference between actual demand and anticipated demand through constant monitoring, and profitable response, are of equal importance to the creation of the original plan.

It is the enhancement of these analytics that will bring benefit to an organization. Without a doubt, there is some benefit to be gained from analyzing what has happened, but it is the prediction of what will happen, along with the identification of risks and opportunities, that will enable a company to increase market share during growth periods and maintain market share during downturns.

Decisions Are Multi-Dimensional

In an article titled “Deciphering supply chain management software” in SearchManufacturingERP.com, Beth Stackpole explores the idea that:

“SCM software has evolved to provide rich functionality in the areas of planning, analytics, and real-time visibility. At the same time, new cloud-based deployment models and consolidation among SCM vendors have transformed what was once an arcane and often disconnected set of applications and processes into a tightly integrated, more cohesive suite of tools.”

Clearly this is related to the comments made by Michael Krigsman to which I refer early in this blog. But what I find fascinating is that while Krigsman is predicting the dis-integration of ERP systems, Stackpole is predicting quite the opposite for SCM solutions. But I disagree with the idea that a “suite” is ever tightly integrated. At the heart of Krigman’s comments is the fact that little has been gained by tightly integrated ERP suites. Perhaps more correctly, his position is that a lot can be gained by uncoupling the decision support and predictive aspects of operations from the transactional aspects typical of an ERP system.
What is missing from both discussions is that decision-making is not one-dimensional. What I mean by that is that nearly every system – whether ERP or SCM – with which I have worked has produced a SINGLE plan, whereas making decisions is all about “what-if”; testing alternative hypotheses about market conditions (and thus, understanding the range of a plan). What I like about Stackpole’s vision is the value that can be obtained by being able to perform this necessary “what-if” analysis across functions. But the legacy idea that simply integrating disparate functional solutions with very different data models, analytics, and user experiences is going to solve the inherent issues in current SCM suites is not correct.

Balancing demand and supply of anything is everything, and this cannot be achieved quickly and effectively with a suite of integrated–whether tightly or not–functional solutions. Key capabilities that are missing include the ability to:

  • Determine immediately the impact of a decision made by one function on the operational and financial performance of another function
  • Identify and alert the people affected by the impact
  • Bring people together, across functions, even organizations, to collaborate on scenarios to resolve an issue
  • Do this in a matter of minutes, not hours and days

Bringing it Together

I agree with Krigsman that the days of monolithic ERP systems are numbered, even as the ERP vendors attempt “edge innovation,” and with Stackpole that SCM solutions need to be tightly coupled. The SCM processes can still be loosely coupled, but there must be the ability to bring different functions together to develop plans that balance competing operational and financial metrics through exploration of multiple scenarios. But we’re not going to get there with systems that are tightly integrated, rather than tightly coupled.

As always–I welcome comment–especially dissenting comment, because we all learn from it.

Posted in Demand management, Milesahead, Supply chain management


Top 10 Reasons Why Supply Chains Are Better Than Sex

Published April 13th, 2012 by Bill DuBois 0 Comments

We’re pushing the boundaries a little today in the interest of some Friday fun (we hope that you read it with the same approach to levity with which it was written). Our resident funnyman Bill DuBois is back with another one of his buzz-worthy top-10 lists:

I read Andy Zeitz’s Supply Chain Isn’t Sexy blog, and although it was an interesting post, I didn’t fully agree with it. Here is why…supply chain

Top 10 Reasons Why Supply Chains Are Better Than Sex:

10. Supply chains don’t care if you’re 60 or 20.

9. Supply chains don’t keep your neighbors awake. (Unless your neighbor is a supply planner…)

8. Your boss wants to hear about your supply chain performance.

7. You can ask a stranger for supply chain software without getting your face slapped.

6. The word “commitment” doesn’t scare off supply chain.

5. You can tell everyone how good your supply chain is.

4. You don’t have to cuddle after your product is delivered.

3.  Asking people what’s wrong with your supply chain is not as embarrassing.

2. Nobody cares if you dump your old supply chain software for a newer solution.

1. With supply chains, faster is better.

Check out some more supply chain comedy on the “Just for Laughs” section of the Supply Chain Expert Community!

Posted in Supply chain comedy, Supply chain management


Rising Labor Costs in China and Their Impact on the Supply Chain

Published April 12th, 2012 by Jenny Tyrrell 0 Comments

laborIn October 2011, Simon Rabinovitch of the Financial Times published an article entitled “China labor cost soars as wages surge by 22%.” This figure is an average across the breadth of the country, with Shenzen and Beijing named as the costliest locations to do business. This trend has been covered extensively by the media in recent months, including Supply Chain Digest last month.

Rabinovitch’s article is interesting, and he listed a number of factors influencing this trend. Chinese inflation and local municipal policy on raising the minimum wage are the primary factors. Rabinovitch also talked of this being a direct policy of the Chinese government, driving municipal action, to move activity in the region further up the value chain. We now see contract manufacturers offering managed services, Celestica being a prime example. It is simply a case of margin. CMs build to low margin and high volume. Margin jumps significantly when they move into professional services.

It is incumbent upon the supply chain to ask if this is a positive move or a negative move.

In previous blogs, I have written about the move toward the Asia-Pacific labor market in the mid to late 90s, primarily driven by low-cost manufacturing, low corporate rates, power services, and inexpensive labor. So, the question is, how does this impact change of cost in the region, impact global companies and their manufacturing base, and ultimately, the cost for the consumer?

This is where the discussion becomes interesting. Do we move out of the Asia sphere, or is this actually a where supply chain needs to be positioned—close to an emerging market? Why would you disregard a market of this size  and continue to view this portion of the globe as an export-driven manufacturing base to support western consumerism? We need to be cautious about a knee-jerk reaction here and move bases out of China to lower cost bases in the APJ region or elsewhere. This reaction may well turn out to be a case of kicking the can down the road, as this wage trend is playing out across all of APJ.

So instead of looking at the negative, the supply chain should look at this as a potential growth and consumer market as well as a manufacturing base.

So initially, the base margin is being squeezed. The upshot of this trend, however, is that a large technology-hungry population has expendable income for “luxury goods.”

Take China alone. Chinas population exceeds 1.3 billion. With an average workforce of 900 million, this is an astonishing large consumer market. If the working population has money to spend, then, the demand chain needs to rise to the occasion and deliver. As a profession, the demand chain is becoming just as much of a buzz word as the supply chain.

So looking at the whole picture, reducing baseline margin, and placing the money into consumer hands will drive the “demand chain,” and ultimately drive sale of goods. Volume will ultimately win out over margin.

Companies need to get “smarter” at managing their supply chains. Labor is only one cost factor in margin as discussed in previous blogs. Technology and people create a lean supply chain. Give people the tools required to react to the market, and the supply chain will find its own margin, and adjust accordingly. So the discussion becomes market size versus market margin.

Posted in Products, Supply chain management, Supply chain risk management


What’s that strange glow? Is it my supply chain?

Published April 10th, 2012 by John Westerveld 0 Comments

I was scanning my reader feed when this headline leapt out at me: Radioactive Scrap Metal is New Threat to Global Supply Chains. This article references an incident at Bed, Bath and Beyond where a shipment of metal tissue box holders set off a radiation detector in California. While in this particular instance the product was not considered dangerous (it was taken off the shelves anyway), it still opens an interesting set of questions as more and more of our metal supply comes from metal recycling.

supply chain

According to a Bloomberg Article, “More than 120 shipments of contaminated goods including cutlery, buckles and work tools like hammers and screwdrivers were denied U.S. entry between 2003 and 2008 after customs and the Department of Homeland Security boosted radiation monitoring at borders.”

It isn’t too hard to see how this happens;  equipment using radioactive materials (medical equipment, power stations, food processing and mining equipment, not to mention weapon manufacturing), just like any other product, have a limited lifespan. This equipment is being scrapped and is finding their way into smelters, being melted down and reused in new products. This process does not get rid of the radioactivity— it only spreads it to other materials.

Many steel companies now scan for radioactivity before processing scrap steel…and for good reason. Cleaning a smelter to remove radioactive material can cost millions of dollars and disrupt production for a week. The Steel Manufacturers Association (SMA) has a significant portion of their public environmental policy page dedicated to radioactive scrap which they call “A major environment problem.” According the SMA, “Current U.S. Nuclear Regulatory Commission (NRC) regulations for generally licensed devices do not provide for tracking of individual owners. The lack of accountability makes it easy for licensees negligently to discard sealed sources in scrap and evade prosecution.”

The issue of radioactive scrap metal is top of mind with the International Atomic Energy Commission (IAEA). They have published a pamphlet on the issue that describes the problem and steps that recycling companies need to follow to ensure that they are not recycling radioactive materials.

So, what does this mean for the supply chain? Companies need to be concerned about any trace of radiation above the background norm in their products. Not because this is necessarily dangerous, but because customers simply will not buy the product if they find out that it is even slightly radioactive. U.S. consumers especially are very nervous about radiation.

While it is likely that significantly radioactive supply “should” get caught at the border, there is still a risk that some radioactive supply could get through. That being said, how do you ensure that your supply chain remains free from radioactive material? Make sure (or have your component manufacturer check) that the supplier of the metals used in your products has a policy to not use radioactive scrap metal and further, scans incoming scrap metal for radiation. If your metal supplier does not have safeguards in place, consider using another supplier.

Is this a concern for your business? Have you taken steps to address this? If so, comment here and let us know.

Posted in General News, Supply chain management, Supply chain risk management