Archive for the ‘Lean manufacturing’ Category

Lean versus EOQ? What’s best for your organization?

Published February 11th, 2015 by Andrew Dunbar 11 Comments

manufacturing lean versus oeqA colleague and I started our morning off with a coffee and a conversation about integrating EOQ (Economic Order Quantity) into MPS (Master Production Scheduling). In no time at all we were debating between lean versus EOQ. While each approach has its merits, the two concepts present some conflicting advice. Here we go again! It doesn’t matter if you’re a technician working on the shop floor or an executive in the board room, if you’re in the business of manufacturing then this is a conversation you’ve had before. Without the right data it’s a debate that’s impossible to win, but I’m convinced that neither solution is perfect in all cases.

EOQ attempts to optimize lot size by balancing manufacturing cost (Fixed + variable costs) with things like inventory holding costs and capacity utilization. Lean relies on minimization of, among other things, lot sizes, inventory and waiting. Traditional ERP systems take fixed (often part specific) inputs for planning parameters and spits out a plan without any thought as to the efficiency (financial/shop capacity, etc.) of that plan. Master schedulers can manipulate the planning parameters to create lean or EOQ optimized schedules, but how do you decide which way is right for your organization?

Companies often swing back and forth between the two ideologies – often depending on which S&OP seminar an executive recently attended. I’ve seen attempts to transition to lean cripple an organization because they incorrectly applied the principles and go too hard and too fast. Yet, going all the way to EOQ could cause over-investment in inventory and tie up capital that would be better invested in new technologies/process that would allow a company to become more lean.

In my opinion, lean appears to be the better solution in many industries, but transitioning to lean is challenging and the reality is that many companies aren’t close yet. So, how do they make that transition? They can go fast, invest a significant amount of cash into the transition and throw a huge team of industrial engineers at the problem to look at everything from all angles. Alternatively, they can go slow, and use a small team of industrial engineers, but where do they start and can they move quickly enough to stay competitive in a rapidly changing world?

With the right analytics and the ability to compare multiple scenarios, it’s possible to find the happy middle ground in between and make a smooth transition to lean. Imagine a tool that allows supply chain professionals to compare both scenarios and understand the complete impact on their business of each option (globally and specifically), and allows schedulers and planners to make the right decision on a case-by-case basis. This could change the conversations of the S&OP/MPS teams as the data can enable rapid and accurate decisions on how to most effectively invest their resources (based on constraints like capacity, inventory holding costs, availability of supply, availability of cash for inventory investment, etc.).

Imagine a scenario:

  • You’ve got a product line with high run rates and steady demand that screams lean but you’ve still got high fixed costs due to multiple products lines sharing the same manufacturing cell (repetitive tear-down/setup)? Let’s work under EOQ rules until your industrial engineers can come up with a solution that reduces your setup time, changes the planning parameters, and swings the balance back toward lean. Oh, and by the way, here’s a list of parts where your industrial engineers should focus their efforts based on the largest opportunities presented (based on current independent demand data).
  • You want to go lean, but your customer’s demand schedule wreaks havoc on your capacity plan. Here are the most cost effective parts to re-schedule/ group to balance capacity with cost.
  • You’ve ‘gone lean’ but aren’t! How do you correct until your industrial engineers catch up with your executive vision?

What are your thoughts? Have you had this debate before? Have you tried to go lean but haven’t received the benefits you expected from your investment? How are you changing the conversation in your organization to ensure you are investing resources effectively? Please keep the conversation going in the comments below.


Posted in Best practices, General News, Lean manufacturing, Products, Sales and operations planning (S&OP), Supply chain management

Things are getting hairy at Kinaxis!

Published November 14th, 2012 by John Westerveld 2 Comments

If you were to walk the halls of Kinaxis headquarters in Ottawa these days, you’d notice something a bit different.

It might take you a few moments, but it’s there. There seems to be a lot of guys sporting hair on their upper lip. No, we’re not living in the 70’s (we leave that to the ERP vendors). No, it’s not a weird Canadian approach to dealing with the cold. Nope, it’s Movember!

Movember is a movement that was started in Australia with a group of friends – you can watch a TED talk with one of the founders here.

The idea behind Movmeber is best described on the Movember website, but here’s a good quote:

“Movember is responsible for the sprouting of moustaches on thousands of men’s faces, in Canada and around the world. With their “Mo’s”, these men raise vital funds and awareness for men’s health, specifically prostate cancer and male mental health initiatives.

On Movember 1st, guys register at with a clean-shaven face. For the rest of the month, these selfless and generous men, known as Mo Bros, groom, trim and wax their way into the annals of fine mustachery. Supported by the women in their lives, Mo Sistas, Movember Mo Bros raise funds by seeking out sponsorship for their Mo-growing efforts.

Mo Bros effectively become walking, talking billboards for the 30 days of November. Through their actions and words, they raise awareness by prompting private and public conversation around the often ignored issue of men’s health.”

Since its inception in 2003, Movember has raised $301 Million CAD and has driven many men (myself included) to take their health more seriously.

This is the second year that Kinaxis has had a Movember team. In our first year, we were able to raise over $2000 and had a lot of fun with various events throughout the month, not to mention growing some really cool ‘staches.

Things are getting hairy at Kinaxis!

This year promises to be even better. We’ve already had a couple of events and we are well on our way to exceeding last year’s donations. My personal favorite event was the bagel breakfast kick-off, which included the “Shave the Scott” event, where some lucky person got to shave the famous beard from our documentation writer, Scott. And no, we didn’t really use the straight razor.


Movember has been a lot of fun so far, but we shouldn’t forget the underlying reason for Movember.  According to the Movember page, men die 5 – 6 years younger than women, have 4 times higher suicide rates. Further, more than 5 men die prematurely each hour from potentially preventable illnesses. Movember is about changing these stats, one mustache at a time.  If you are interested in helping raise money for men’s health awareness and research, feel free to donate to team Kinaxis!


Posted in Control tower, Demand management, Lean manufacturing, Response Management, Supply chain collaboration, Supply chain comedy

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

SCM30: What Can We Learn From Supply Chain Management Mistakes?

Published March 23rd, 2012 by Ray Karaffa 0 Comments

Welcome to the first blog post in the SCM30 series. Throughout 2012, Kinaxis will be exploring the past 30 years—as well as the future—of supply chain management. 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—you’ll find more details on that in the post below.



Watch for the SCM30 posts on alternating Fridays over the next few months. These blog posts will be fueled by conversations on the Supply Chain Expert Community discussion forum. Look for the next discussion to start there on Monday, March 26.

This blog article is the result of a compilation of shared insights and observations of experienced practitioners in the supply chain management field. This author regrets that all of the insights could not be published in order to maintain the brevity of this article. The full contributions can be viewed here.

2012 marks the 30th anniversary of the term “Supply Chain Management.” Keith Oliver, as a consultant with Booz Allen Hamilton, coined the term in 1982. The following is his definition as explained by

Supply chain management as a concept has been widely accredited to a Booz Allen consultant named Keith Oliver who, in 1982, defined the concept as follows: “Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.”

SCM as defined by Keith Oliver could be construed as Macro Supply Chain Management (Macro-SCM), since it involves the global network processes from the initial raw materials to the ultimate consumption of the finished product linking across supplier-user companies. These functions lie within and outside a company that enable the value chain to make products and provide services to a customer.

Micro Supply Chain Management (Micro-SCM) could then be construed as the non-global activities concerned with planning and controlling the rates of purchasing, production, distribution and related capacity resources to achieve targeted customer service levels within a company. This could be a replacement for the old term of Production and Inventory Management since it is now included within the broad definition of SCM.

Micro-SCM would then also be involved with the body of knowledge relating to the evolutionary progression of Material Requirements Planning (MRP), Manufacturing Resource Planning (MRPII) and Enterprise Resources Planning (ERP). This body of knowledge began back in 1957 when 20 production control managers met in Cleveland, Ohio, to form the American Production and Inventory Control Society (APICS), which is currently referred to as the Association for Operations Management.

Keith Oliver along with Tim Laseter, the co-author of “When Will Supply Chain Management Grow Up?” in the Fall 2003 issue of strategy + business, had a few ideas of their own regarding mistakes made in SCM and their suggested solutions.

The first mistake discussed was the reliance on forecasting. Forecasts are just guesses and are usually wrong. They have a major result on inventory. The resulting inventory could be thought of as good (you are not out of stock) or bad (you have way too much inventory).

In the case of the forecast being wrong, there could be good and bad consequences also: good (we sold out) and bad (lost sales due to out of stock).

Forecasts, since they are merely guesses, require constant vigilance and adjustment to history in order to keep the stock-out wolf away from your door. The good thing about MRP is that you don’t have to guess on every part number like you do with the classic order point formula. MRP has product structure, therefore, you only have to guess at the independent demand level and MRP will derive the rest of the forecast changes from the product structure. This makes it easier to adjust your forecast to current history.

Replenishment frequency was the next mistake discussed. Both Lean and the Theory of Constraints taught us that the replenishment cycles should be as short as possible. That means that one-for-one replenishment is ideal.

We always “talk the talk” of Lean, but seldom “walk the walk” of Lean. Once you leave the Lean seminars and walk out onto the shop floor, you can talk with planners who are not following good Lean MRP principles.

This author believes MRP facilitates Lean very well through the use of discrete, lot-for-lot order quantities with true and accurate lead times. I have seen it and I have done it. All too often, planners join in the mass hysteria of ordering lots and lots of material and parts in fear of stock-out situations.

They also over-inflate lead times in an effort to give suppliers and the shop floor more time to deliver on time. This artificial inflation of lead times in an MRP planning environment only releases orders earlier than needed into sometimes an already overloaded shop floor supplier base.

What we need to do is build the integrity back into the MRP system by following good MRP principles and cutting lead times to the bone and ordering discretely in a lot for lot to achieve Lean manufacturing. Lean manufacturing doesn’t have to be limited to manual kanbans. It can be achieved through the use of sound MRP principles.

Inventory management agility, or lack thereof, is another suggested SCM shortfall. Systems should dynamically adjust for changes in demand via supply chain visibility constantly. Our Kinaxis RapidResponse Control Tower concept would facilitate this functionality.

Inventory managers should be able to respond to simple visual signals indicating the condition of the inventory. Here again, RapidResponse, with its widget capability, could supply managers with tablet inventory graphics beginning at version 11.0.

Systems should be able to rapidly analyze historical data and identify sudden demand changes by simple rules. Our RapidResponse alerts functionality would solve this requirement nicely.

The move toward the outsourcing model in the mid-90s appears to be another major SCM mistake. Determining where to place the manufacturing base has been a constant headache for supply chain managers. The cost base often persuaded these decisions, superseding issues in relation to geography, lead times, time zones, language, market placement, logistics and distribution.

Supply chain people are expert in global management of the product manufacturing movement and less inclined to factor cost. Speed is of the essence. Finance people approach from a balance sheet perspective.

Distance is the main dilemma. How long will it take to move material from one end of the globe to the other, which adds to the lead time of the delivery of the product? Freight charges become a massive headache and an additional ten days can be added for freight lead time. Sea freight is slow.

Expediting costs are unmanageable and are being employed far too often, decimating product margin. Material backlogged in international hubs is awaiting paperwork and duty payments specific to the region.

There are difficulties of trying to run a production line remotely, in a different time zone and off your ERP system where visibility is non-existent. In the United States, the informal system of shortage meetings and hot lists are the actual way things get shipped anywhere close to on time. A lot of companies are finding it next to impossible to run a world-wide shortage meeting to get the job done. These meetings and hot lists work somewhat better locally than halfway around the world.

Inventory costs have increased exponentially through a developed hub system housing geographical locations to reduce lead times and enable faster reaction to changes in customer demand.

The end result of all of this was a lower manufacturing cost base on paper, designed to increase margin but in reality the supply chain had to scramble to react to this decision.

When you look at the Kinaxis RapidResponse Control Tower concept, you can realize that this new approach would have avoided this dilemma 15 years ago.

Another major SCM problem appears to be a constant shift to whatever seems easier instead of focusing on the hard and prolonged work of changing processes and corporate culture. How many times have we heard of companies only implementing partial modules of an ERP solution? The reason is always that the rest of the solution “just doesn’t fit our business. We’re unique and we don’t want to change our processes.” This results in disparate system silos.

We have to move our companies away from departmental system silos and work to a single version of the truth. I’ve been searching for a way to convey this in some of my blog articles for some time now, and it really came to me after watching a video posted on In this video entitled The Control Tower: Breaking Down Enterprise Barriers!, Kinaxis CEO, Doug Colbeth describes tying together all parts of the enterprise and eliminating silos. He describes the Control Tower as a single platform with a single version of the truth. No silos.

Again, in order to limit the length of this blog article, I couldn’t post all of the suggested insights from the online discussion, but if you are interested in reading more on this topic, the full contributions can be viewed here.

Posted in Inventory management, Lean manufacturing, SCM30, Supply chain management

Top 10 ways to make manufacturing sexy

Published September 3rd, 2010 by Bill DuBois 0 Comments

There is an interesting post on the Lean Six Sigma LinkedIn Group titled “How Can We Make Manufacturing Sexy Again?” started by Karin Lindner. Some may say that manufacturing was never sexy but Karin does a great job explaining what’s behind the question and why we would want to answer this. I think it goes for all of supply chain that getting our youth excited about all things manufacturing and supply chain will secure its future in North America. There were many great posts, but of course I couldn’t resist the opportunity for a top ten list!

  1. MTV Cribs Show – Manufacturing Edition (What better way to promote those 5S programs?)
  2. The Annual Manufacturing Awards Show, The Leanies…and the winner in the best set up reduction program in a job shop environment goes to…?
  3. More Commercials. “I’m a material planner, and this is my Supply Chain!”
  4. The 2010 Manufacturing Calendar – Swimsuit Edition
  5. Paint those NC machines the color of your town’s top sports teams. Philadelphia Flyers orange is always a good bet.
  6. Are you delivering product on time? Well, let your customer know by including a balloon-o-gram…ok, that’s not sexy, just annoying.
  7. Get Carrie Underwood to sing the anthem before the start of each shift.
  8. Manufacturing Tours, Universal Studio style. (This was actually taken from a serious suggestion and a great one at that. What better way to get youth exposed to manufacturing, lean and supply chain?)
  9. Suggestion from Erik Fuessel, remake Justin Timberlake’s “Bringing Sexy Back”…to manufacturing!
  10. Missing delivery or revenue target? Into the dunk tank you go…

Posted in Lean manufacturing

Pull vs. push manufacturing: Have you been stuck with an umbrella on a sunny day?

Published July 22nd, 2010 by Martin Buckley 1 Comment
Image via Wikipedia

I came across the following blog post at The Manufacturing Blog that gives a plain English description of pull-model production methods – how to be lean and demand-driven.

I particularly like Stephen’s analogy of push vs. pull manufacturing:

By trying to guess potential demand, manufacturers often found themselves in the same situation as someone carrying an umbrella on a sunny day because the forecast predicted rain: extra effort for no reason. Modern manufacturers prefer to stick their head out the window and check for rain before grabbing their umbrella, so to speak, limiting waste and maximizing efficiency.

As Stephen points out,

Understanding the many complex strategies behind these new manufacturing methods can be as difficult as predicting the weather, as they have brought along with them a series of three-letter acronyms that dominate jargon-filled conversations about current manufacturing trends, like JIT, TPM, QRM, and JIS. These letters don’t exactly help to explain the basic ideas behind pull-production manufacturing, which actually make a lot of sense when spoken in plain English.

Thus, Stephen gives us a plain English guide to the ‘alphabet soup’ and breaks things down to the key concepts of lean manufacturing, Six Sigma and flexible manufacturing. It’s a good overview.  And the long list of acronyms in the post reminds me of our Suitemates “Suites are Sour” comedy video episode – the acronyms in our industry are not just limited to manufacturing and supply chain terms, but also applies to the associated technology applications!

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Posted in Lean manufacturing, Supply chain management

Can you get too Lean?

Published April 30th, 2010 by Trevor Miles @milesahead 12 Comments

Without a doubt, Lean Manufacturing has been a transformative idea that has its genesis in the Toyota Production System.  Many companies have been able to reduce inventories and reduce order-to-delivery times simultaneously.  There is nothing new in this statement.

What is interesting is an article in Business Week discussing how Deere & Co is struggling to satisfy customer demand because of their adoption of Lean.  While undoubtedly, as stated in the Business Week article, there has been a big emphasis on Lean adoption in Deere which has led to large reductions in inventories, I think there is more that can be drawn from the story. The question is whether you can get too Lean?

Source: AGCO Corp.

Before I start though, here are some caveats:  I am not a Lean practitioner, I am not a financial analyst, and I do not know the strategies of the companies I will discuss below.  But I am a farm boy, and had a Massey Ferguson, one of the AGCO brands.  I spent many happy hours ploughing fields and reaping crops on “big red”.  I learned to drive the tractor when I was 5 and had to pull down on the steering wheel because I wasn’t heavy enough to push the clutch down.  Going to the tractor dealer was infinitely more interesting than going to the car dealership or toy store.  However, I digress.  As a child I experienced the side of the buyer, and as an adult I have been inside more than one of the Ag equipment manufacturers as a consultant, so I know a little of their operations too.

As the Business Week article states, this is a highly seasonable business.  One thing that has changed dramatically since my father bought tractors is that they are now highly configurable with all sorts of options that include air conditioning and GPS.  Combining seasonality with configurability is a toxic mix for getting Lean wrong.  A central tenet of Lean is “level loading” which is all about keeping a regular cadence in production.  This is fine when you can predict the demand very well, but outside of these tight boundaries, it is really easy to get into trouble either in terms of missing customer shipments (as is the case at Deere), or in terms of not making best use of capacity. From the numbers, it appears that Deere has focused on reducing inventories without implementing an adequate postponement plan to reduce the order-to-delivery cycle.  Let’s go and look at the numbers.

The data in the table above is based upon the 2009 financial results.  (You can do the same analysis using our free benchmarking service.) From this, we can see that Deere & Co has by far the lowest days of inventory (DOI).  However, look at their cash-to-cash (C2C) and days of sales outstanding (DSO).  Their DSO is 7 times more than that of AGCO, which is best-in-class.  What I suspect is that the Deere DSO represents a lot of inventory sitting on dealer floors for which Deere has extended long payments terms to the dealers.  I don’t know this for a fact, but from what I know of the relationships between OEM’s and dealers in the Ag Equipment industry, I suspect this is the case.

More interesting from an operational perspective, is to analyze Deere’s inventories, especially in comparison with those of AGCO.  We see that Deere has roughly double the finished goods (FG) inventory of AGCO and roughly half the raw material (RM) inventory of AGCO.  The work-in-progress (WIP) inventories are roughly the same, though in real terms, AGCO’s are 33% lower.  The conclusion I come to is that Deere makes FG and stuffs the channel.  If the FG values don’t convince you, what about the DSO?  It would appear that AGCO has worked out how to forecast dependent demand – components and sub-assemblies – so they buy a bunch of stuff and then do late stage assembly to meet market demand.  I come to this conclusion because they have the highest RM yet the lowest WIP and FG.  Compare that to Deere which is organized the other way around with more FG and relatively little WIP and RM.  My conclusion is that AGCO is the company that has truly embraced Lean.  Simply reducing inventories without a good postponement strategy is a recipe for poor performance. Where we see the real benefit to the AGCO investors in the return on invested capital (ROIC). Clearly there is a lot that Deere is doing that is correct.  Of the big Ag Equipment companies they have the highest margin values, all the way from gross margin through to net margin.  So I hope they get this right.

Let me repeat at this point that none of my analysis is based upon deep knowledge of how these companies operate.  I could be wildly wrong, but I don’t think I am.  What do the Lean experts out there think?

Posted in Inventory management, Lean manufacturing, Milesahead

Envisioning the new normal and other supply chain phenomena

Published February 23rd, 2010 by Trevor Miles @milesahead 0 Comments

I came across a great blog post by Atul Chandra Pandey from Infosys titled “Y2010 & Ahead – value chain trends in emerging economy” in which Atul emphasized the following trends in the first part of a 2-part series:

  • Customer side equations will take prominence over rest of value chain
  • Supply chains will get more integrated with marketing and service chains
  • Speed and responsiveness will be key drivers for spend on new initiatives
  • Cost will continue to play critical role in decision making
  • Asset Management will gain more prominence and will help in accelerating “green” initiatives

I responded to Atul in the following manner:

We too are experiencing that prospects and customers are focusing a lot more attention on customer satisfaction as it pertains to on-time delivery of orders, but also to the enquiry-to quote and quote-to-order processes.

I couldn’t agree more with your third point about speed and responsiveness. Overall the trend we are observing is that consumer behaviour is pervading B2B transactions with ever shorter lead times. Coupled with the adoption of Lean and postponement strategies, companies have to be very responsive to changing demand, blurring the lines between planning and execution. These are the business drivers for your third point about agility and responsiveness.

Cost will always be a driver in supply chain management. If we adopt any of the Lean concepts it should be the elimination of waste. All too often I come across situations where the information and decision lead time exceeds the physical lead time to manufacture and/or deliver the order.

But this got me thinking about several other reports and observations that have come across my desk over the past 12 months.

First and foremost must be the article by Dan Gilmore at Supply Chain Digest highlighting the work done by Supply Chain Digest’s research arm CSCO (Chief Supply Chain Officer) Insights.  There is an excellent report titled ”Next Generation Supply Chain Management: Integrating Planning and Execution” available from this link. (Subscription required).  In the article, Dan Gilmore observes that “For many years, analysts and others have offered separate models of ‘supply chain planning’ and ‘supply chain execution’ processes, and the technology vendors were generally organized in that sense as well. You can find many diagrams that show hierarchical planning processes with no connection at all to execution, for example. The report argues, and the research supports, that this gap must be closed from a process perspective to meet the challenges of today’s supply chains.” I added the bolding because this is the key to being able to provide the speed and responsiveness to which Atul at Infosys refers.  Not only that, but also managing to contain if not reduce supply chain costs will depend on being able to reduce this gap between planning and execution.

Traditionally we have used inventory to buffer against what we would like to happen (the plan) and what actually happens (execution).  But this is no longer possible.  As the graphic below illustrates, as long ago as 2004 postpone strategies had pushed much of the inventory up the supply chain to the suppliers.  They too have adopted Lean and postponement strategies, leading to even lower inventories.  And then there is the effect of the recent recession.  Nearly all the OEM’s I speak to are struggling to secure supply of components, clearly indicating reduced inventory levels in the suppliers. I wish I had equivalent inventory figures for 2009.  Anyone willing to provide these figures?

Then there is the excellent blog written by Lora Cecere recently titled “Tackling the Black Hole in the Center of Your Supply Chain” in which she states “We now know that fixed data integration, one-dimensional rules mapping, and traditional master data techniques from ERP to Supply Chain Optimization are insufficient.  As a result, plans are created and consumed in isolation, and transactional systems hum along with little– to no — guided intelligence.”  So as the speed of business has increased – some would describe this as volatility – the supply chain systems have not kept up.

And most of the information is now external to your organization.  Companies have being trying desperately to get point-of-sale information to get early trend analysis of sales.  At the same time, many brand owners have largely outsourced manufacturing, not only lengthening the physical supply of goods, but also the time and effort it takes to make a decision.  All of these factors are only making the gaps between planning and execution even wider.  But the business need is to close this gap; to respond to demand changes quickly and effectively.  As Lora Cecere, states, the solutions from the 1990’s have not kept pace with the business needs.  Throwing more ERP at the problem isn’t the solution.  At their heart, all ERP systems are essentially accounting packages.  They deal with your data – financial and operational – but provide very little help in dealing with the majority of the information, which now exists outside of your organization.

What are your thoughts?  Do you experience this gap?  Are your systems able to cope.  Will your next breakthrough in performance come from learning to plan better, or learning to respond to plan variance?  In other words, closing this gap between planning and execution.  Robust debate encouraged.

Posted in Demand management, Inventory management, Lean manufacturing, Milesahead, Response Management, Supply chain management