Archive for the ‘Miscellanea’ Category

Miami Vice, Diapers, SCM World and the Digital Supply Chain

Published April 14th, 2014 by CJ Wehlage 2 Comments

Let me set the scene for you:
It is Sunday, February 23, 2014 at 9:00a.m.  Location: Miami, the Trump National Doral… outside patio. I’m grasping two cups of coffee and wearing all white. I’m sitting with Kevin O’Marah and he has an inquisitive demeanor … do I have your attention?

Now, let’s go back 9 hours. I was north of San Diego celebrating at a local home. The event was the Scholars Circle White Party, to honor the donors of a local public school.  Naturally I wore white shoes, white pants, and a white shirt. I had to leave the event and go straight to the airport to catch my red-eye flight to Miami to attend the SCM World Live conference. I landed at 7am EST – nary a minute of sleep on the plane. I took a cab ride over to the Doral to meet my good friend Kevin O’Marah, Chief Content Office at SCM World (and wondering why I scheduled a 9am and not a 5pm, but that is beside the point).

Kevin and I go way back to our days at AMR Research. I always love catching up with him, sharing stories of supply chain, innovative practices and research concepts.

The first thing Kevin said to me was “you look ready for Miami!” … referring to my all white attire (for all you Millennials, it’s a Sonny Crockett thing…that’s Don Johnson from Miami Vice).

Not only was I ready for Miami and the SCM World Live conference, I was also ready for a very insightful 1+ hour back and forth with Kevin on digital demand and the impacts on supply chain.  I’m sure Kevin was expecting my insights to be on Apple or Bose, where I had worked prior.  However, I was actually captivated by an innovation on digital diapers. Yes, digital diapers.  I had just read a story about diapers that actually tweet you when they are, say, wet or soiled…

There’s a device inside each diaper: a sensor for identifying when the diaper is wet and a blue-tooth to send a tweet.  As a true supply chain practitioner, my main concern was that the cost would be too high for this product. But, when I spent some time thinking about the product and the customer experience, I concluded that the digital diaper cost could not only the same as the regular diaper, it stands a chance to be lower.  As the SCM World report “Demand Management 2020” states, “Value to the customer encompasses the product purchased as well as the complete experience around that purchase (Demand Management 2020, SCM World, Research Report, March 2014).”

Our discussion came back to how a supply chain practitioner can participate in building a “digital” product.  Certainly it takes marketing, engineering, and sales innovation, but also supply chain innovation.

Having worked at Kinaxis for a little over a year, I told Kevin, “one of the main benefits I see our customers achieving is planner productivity”.  Our end-to-end planning with exception based notifications and simulation removes steps from the process and brings significant speed. The result is that planners are more productive.  Or said another way, planners can spend more time on innovation.

The SCM World report states, “It is this translation (across demand and supply), that brings about the ability to evaluate different strategic scenarios (Demand Management 2020, SCM World, Research Report March 2014).”  Our discussion continued along these lines.  In order for supply chains to test innovation, planners need simulation capability to create scenarios.  In essence, test the innovation against operational realities and metrics.  At Kinaxis, our customers do just that. Achieve the benefit of planner productivity and use it to simulate scenarios.  Scenarios improve profit margin, inventory turns, operating costs, value to the customer, new product ramps, revenue growth, capacity, etc.

So, let’s go back to our digital diaper discussion.  How does a customer purchase diapers?  One would likely go to a retail store, buy a box of 100, get home and put 30 in the downstairs bathroom, 30 in the baby’s room, 30 in the travel bag, and the last 10 in the stroller pouch. When the 30 that are downstairs runs out, you steal from the travel bag a few times, and then probably go buy another box of 100.  Never realizing exactly how many you have. You just don’t want to be at Zero   Trust me – I have two young kids…

That’s the customer experience, much more than a spreadsheet of demand numbers for your supply chain planners.  Now, imagine your team using an application to simulate innovative scenarios and gain significant productivity.

Supply chain innovation scenario: Each tweet the diaper sends out can also count the tweets. When you get to 75 tweets, you also get a tweet or email telling you that there are 25 diapers to go, and asking if you would like a new box of 100 shipped direct to your home.  The tweet/email can also suggest other products (such as items in excess) to add to the order, or special price/promotional add-on’s. That data can also go back to the manufacturer, and used for supply chain planning.  As Kevin and I talked, we came to the possibility that the “digital” diaper could actually cost less when looking at the “complete experience around that purchase.”

SCM World And the digital supply chain

The opportunity is in front of us as supply chain practitioners.  Anything can be digital, and digital can change the supply chain significantly.  Kevin and I concluded that current business complexity keeps us so busy firefighting and resolving issues 24/7. As leaders, we need to get to true exception based end-to-end planning, and gain the benefit of planner productivity.  Only then can our supply chain planners take the time to simulate innovative scenarios that bring customer value, revenue growth, and supply chain excellence, even to products like diapers.


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Posted in Demand management, Miscellanea, Response Management, Supply chain collaboration

Forecast in Bonn is Sunny: Positive Outlook from Automotive Logistics Europe

Published March 18th, 2014 by Melissa Clow 0 Comments

While I was traveling to Bonn, Germany for Automotive Logistics Europe, I decided to look up the conference hashtag #ALEurope. The first thing I saw was the following snowy scene from last year’s conference:

As a Canadian trying to escape the snow, I was extremely excited to see the sun when I landed. The conference kicked off just as well. The keynote was presented by Andrea Eck, General Manager Outbound Logistics, Volkswagen and followed by Michael Gartside, Senior Automotive Analyst, PwC.

We heard from Gartside that 2013 marked the sixth consecutive year of a decline in vehicles sales in Europe. Like the weather though, this year’s economic situation is looking brighter than last year’s – things are looking up for 2014 and beyond. He presented that there is a return to growth in many EU countries, vehicle sales and production are rising in Europe, and present forecasts predict increases over the next decade.

To illustrate, from a climate perspective, just how different things were, here’s a picture I took during a conference break:

Another interesting aspect of the conference was a live survey the organizers prepared. The question that resonated with me was: “What would make the biggest difference to improving automotive logistics in Europe?

The top answer from voters called for better ‘IT systems and software‘ for improving automotive logistics. As a company that delivers S&OP and supply chain solutions for large enterprises, this response definitely peaked my interest.

Service Parts Supply Chains are Gaining Importance To address some of the challenges facing automotive supply chains, my colleague Aamer Rehman presented “Aftersales & Service Parts: Serving the customer and the supply chain” …to speak about using technology to help solve complex supply chain issues.

He believes that service parts supply chains are gaining importance and that a fundamental change is required in supply chain management.  OEMs and suppliers need global visibility in order to align and synchronize multi-tiered supply chains for fast responses to demand and supply changes, and to make intelligent tradeoff decisions based on real insights.

In Rehman’s opinion, the automotive sector needs significant improvement in some critical enterprise competencies:

  • Improving visibility, alignment and synchronization across functions, and more importantly across the supply chain, and with a focus on customer service.  This is critical given gradual reduction in vehicle inventory in the channel and working capital reduction pressure across all supply chain stakeholders.
  • Supply risk management – where companies need to develop core capabilities to detect supply and capacity problems, assess the impact, come up with business tradeoffs and publish the change.
  • Speed and accuracy of decision making is critical.  In this case, automotive companies need to focus on capacity planning and capacity constraint management disciplines and processes in order to remove unnecessary latency and lack of visibility across the value chain.
  • Collaboration across stakeholders – collaboration is not merely passing data between partners.  It is about context and content specific collaboration to understand who is impacted by a change and mutually resolve it inside and outside the enterprise.
  • Companies need to eliminate information latency between strategic, tactical and execution windows and eliminate the artificial boundaries.  For example, a static monthly S&OP reporting cadence is not sufficient.  Tying it to weekly and daily execution is critical.  A seamless flow through planning time frames is possible only if companies diligently work towards removing the patchwork of applications and Excel.  S&OP, capacity planning, constraint management and inventory management processes need to be revisited to establish discipline and alignment in decision making required for globally distributed supply chains.

For more information, you can check out his presentation slides below.

You can also see some of photos from the Automotive Logistics conference on our Facebook page.




Posted in Miscellanea

How First Solar Keeps Pace With Demand – Kinaxis & SupplyChainBrain Series

Published March 17th, 2014 by Melissa Clow 0 Comments

SupplyChainBrain attended our annual Kinexions user conference, and while there, they completed a number of video interviews with customers, analysts, and Kinaxis executives. And, we’d like to share them!

In this interview, hear Jennifer Bell, systems analyst with First Solar, talk about the challenges her company faces in gaining full visibility of supply and demand, and in dealing with increasing supply-chain volatility. Recently the company implemented capability for integrated project management, to bring itself closer to customers and their purchasing patterns. First Solar is now able to drive both planning and construction of its arrays deep into the supply chain. RapidResponse is helping to forecast better, and respond more quickly to plan variances.


How First Solar Keeps Pace With Demand – Interview summary

How First Solar Keeps Pace With DemandFirst Solar is a manufacturer of solar panels. It also provides engineering, procurement, construction and operations services for the building of large solar arrays. The company positions itself as a low-cost provider in its industry, says Bell.

Among its pain points is the need to balance supply and demand. Recently the company implemented capability for integrated project management, to bring itself closer to customers and their purchasing patterns. First Solar is now able to drive both planning and construction of its arrays deep into the supply chain. RapidResponse is helping it to forecast better, and respond more quickly to plan variances, Bell says.

Jennifer Bell First Solar Supply Chain - How First Solar Keeps Pace With DemandThe effort to improve planning was triggered by a sharp downturn in the solar materials industry. Toward the middle of 2012, First Solar began experiencing increasing cost pressures, with prices being driven down by competitors.

At the time, it was selling modules exclusively to distributors, mostly in Europe. But the pressure on margins drove it to expand into the engineering and construction sector. And that move, says Bell, led us to see that planning was an integral part of our business. It needed a better means of forecasting demand, so that it could create value for our customers.

First Solar faces a significant amount of market volatility, both as a supplier and technology implementer. Construction projects can be affected by a wide variety of factors that are beyond the company’s control, such as weather, soil variability and unforeseen environmental impacts.

It means we have to be able to respond very quickly, says Bell. We need to be able to plan that in the project. Critical decisions must be made in far less time than before, as the company hits the various revenue milestones that are built into its projects. If we don’t meet plan, Bell says, we have huge ramifications for our customers.


Previously, we featured interviews with:


Posted in Miscellanea

Kinaxis Positioned in the Leaders Quadrant of Gartner’s Magic Quadrant for Supply Chain Planning System of Record

Published March 10th, 2014 by Lori Smith 0 Comments

Gartner recently published their Magic Quadrant for Supply Chain Planning System of Record and we take great pride in the fact that Kinaxis has been placed in the Leaders quadrant.

We’ve worked hard over many years to differentiate and distinguish ourselves in the marketplace, so this third-party view is particularly validating for us. 

Gartner-magic-quadrant-supply-chain-planning-system-of-recrod-march-2014.jpgAccess full Magic Quadrant Report

Gartner defines a supply chain planning (SCP) System of Record (SOR) as:

An SCP SOR is a planning platform that enables a company to create, manage, link, align, collaborate and share its planning data across a supply chain — from demand plan creation through the supply-side response, and from detailed operational planning through tactical-level planning.1

In this regard, we believe we truly do stand apart from other vendors in the space.

The report positions vendors based on completeness of vision in the supply chain planning system of record market and on their ability to execute to that vision.

So that begs the question…“What’s our vision of a supply chain planning system of record?

Ultimately, we believe that a supply chain planning system of record should be focused on how it can drive tangible business outcomes not just on how to run the supply chain planning function. Value is only derived when technology enables clear and compelling business results.  We believe that can only happen if you are orchestrating the supply chain from a single system.  With a supply chain planning system of record, companies should achieve:

  • multi-tier, multi-enterprise supply chain visibility, planning, analysis, and collaboration,
  • integrated demand and supply planning – at an aggregate and detailed level;
  • active monitoring of current and projected business results from a user-defined perspective;
  • rapid what-if analysis and scenario comparison to model unlimited alternatives and evaluate their impacts across multiple functions; and
  • continuous orchestration of business activities and coordinated course corrections that optimize overall corporate performance and profitability.

Find out more about End-to-End Supply Chain Process Enablement with RapidResponse, and the outcomes Kinaxis customers have realized.

Supply Chain Planning and S&OP Process Chart

1 Gartner, Magic Quadrant for Supply Chain Planning System of Record, T. Payne, March 6, 2014

Disclaimer: Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

Posted in Miscellanea

The Gender Divide in Supply Chain – 3 Questions That May Show We Are Looking at the Wrong Issue

Published March 5th, 2014 by Trevor Miles @milesahead 3 Comments

I like to think of myself as a champion for women in all walks of life. And in terms of the supply chain, I believe there are female characteristics that we can and should leverage a lot more, specifically their more collaborative and consensual approach to solving problems. Of course I understand that these are generalizations. Prejudice is devaluing characteristics particular to one group, and assuming that a particular member of a group conforms to the broad generalizations about that group. I hope I do neither.The Gender Divide in Supply Chain

Why do I write about this topic now? Well, it is International Women’s Day for one, but it is also a topic I have written about before when commenting on the HSBC ‘Thank Heaven for Little Girls’ campaign and on a panel about women in supply chain at a John Gattorna conference in Singapore.

Here are some links to other resources for International Women’s Day:

If we understood and valued more the right skills needed in today’s environment, would that naturally translate to more women in the supply chain?

In addition, we sponsored a day during the recent SCM World Live conference devoted to the topic of women in the supply chain. Kevin O’Marah wrote a summary of the day titled ‘Women in supply chain: a bias for action’ in which he comments that his key take-aways from the day were the need for:

  • Quotas
  • Systemic support
  • Structural support
  • Advocacy
  • Fill the front end of the pipeline
  • Look laterally for talentgender divide in supply chain infographic
As you can imagine, this list generated quite a lot of debate, particularly the questions of quotas. Christina De Luca, VP of Procurement and Supply Chain for BP, was very articulate in stating that the quotas of the 1970s, when she started working, were wrong in that all they looked at was filling a certain number of positions with women. In Christina’s view the characteristics that we look for and the criteria we use to select people has to change because these have been skewed towards men. Her view, with which I agree, is that, when compared with the 1970s, or even the 1990s, business is now operating in a much more volatile world. And it’s not going to change. To quote her from the session:

That predictable, stable world which allowed us to make decisions in isolation, hierarchically, is gone.

It requires a way of working, a skill set that is completely different. We need to talk with and collaborate with colleagues and competitors.

I agree whole heartedly. As Kevin Shriver of Land O’Lakes said on a panel, if more than 50% of the population is women and less than 20% of the people in senior supply chain positions are women, then by default we cannot be hiring the most talented people.  This gets us back to the issue of the characteristics that we look for and the criteria we use to select people.

By a show of hands in the room at the SCM World Live event, a very clear majority of the women, which by definition are women who have risen to high positions in a company, had husbands who had stayed at home with the children so that these women could devote the time to climb the corporate ladder.   On a personal note, my wife and I made a more traditional decision, so, given that I am married to a very bright and capable woman, I am more concerned by the reintroduction of women into the workforce after an absence for child rearing, be that 1 year or 18 years. I asked a few women sitting around me about this and they all placed the onus on the women to explain their absence from the work force and articulate the transferable skills gained from their time at home. I disagree. What is required is for HR departments to value the multi-tasking, agenda setting, rapid trade-off analysis, and appeasement skills that are inherent in raising kids and running a household.

Are we labeling by gender when we should be defining by characteristics?

The question is if there is genuinely a difference between men and women. I think it is best to use an approach that focuses on the characteristics desired rather than to label these characteristics particular to women or men. Having said that, I have always been fascinated by the work of Geert Hofstede on ‘cultural dimensions’ dating from the 1970s, but continue even today. His work has its own detractors and adherents, but what I find interesting is his comparison of different ‘cultural dimensions’ across countries, the dimensions being:

Power distance index (PDI): “Power distance is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally.” Cultures that endorse low power distance expect and accept power relations that are more consultative or democratic.

Individualism (IDV): “The degree to which individuals are integrated into groups”. In individualistic societies, the stress is put on personal achievements and individual rights. People are expected to stand up for themselves and their immediate family, and to choose their own affiliations. In contrast, in collectivist societies, individuals act predominantly as members of a lifelong and cohesive group or organization (note: “The word collectivism in this sense has no political meaning: it refers to the group, not to the state”). People have large extended families, which are used as a protection in exchange for unquestioning loyalty.

Uncertainty avoidance index (UAI): “a society’s tolerance for uncertainty and ambiguity”. It reflects the extent to which members of a society attempt to cope with anxiety by minimizing uncertainty. People in cultures with high uncertainty avoidance tend to be more emotional. They try to minimize the occurrence of unknown and unusual circumstances and to proceed with careful changes step by step planning and by implementing rules, laws and regulations. In contrast, low uncertainty avoidance cultures accept and feel comfortable in unstructured situations or changeable environments and try to have as few rules as possible. People in these cultures tend to be more pragmatic, they are more tolerant of change.

Masculinity (MAS): “The distribution of emotional roles between the genders”. Masculine cultures’ values are competitiveness, assertiveness, materialism, ambition and power, whereas feminine cultures place more value on relationships and quality of life. In masculine cultures, the differences between gender roles are more dramatic and less fluid than in feminine cultures where men and women have the same values emphasizing modesty and caring. As a result of the taboo on sexuality in many cultures, particularly masculine ones, and because of the obvious gender generalizations implied by Hofstede’s terminology, this dimension is often renamed by users of Hofstede’s work, e.g. to Quantity of Life vs. Quality of Life.

Long-term orientation (LTO): First called “Confucian dynamism”, it describes societies’ time horizon. Long term oriented societies attach more importance to the future. They foster pragmatic values oriented towards rewards, including persistence, saving and capacity for adaptation. In short term oriented societies, values promoted are related to the past and the present, including steadiness, respect for tradition, preservation of one’s face, reciprocation and fulfilling social obligations.

Indulgence versus restraint (IVR): The extent to which member in society try to control their desires and impulses. Whereas indulgent societies have a tendency to allow relatively free gratification of basic and natural human desires related to enjoying life and having fun, restrained societies have a conviction that such gratification needs to be curbed and regulated by strict norms.

The Gender Divide in Supply Chain graph1In reality, many of these dimensions are interlinked and, for example, in many cases cultures with a high Masculinity index also have a high Power Distance Index. But the actual values are of little value if not compared to other countries/cultures.

Of course, the most obvious connection to the topic of women in supply chain is the Masculinity dimension, and, by inference, the degree of ‘femininity’ in the culture. As defined by Hofstede, Masculinity is characterized by competitiveness, assertiveness, materialism, ambition and power, which, in my opinion, is at the heart of dysfunction in the supply chain, and precisely not the characteristics described by Christina De Luca as necessary for the modern supply chain.

The Gender Divide in Supply Chain graph2 It bothers me though that Hofstede uses the term Masculine to describe only one dimension.  For example, I would rate Sweden more ‘female’ because by comparison it rates low on Power Distance and Masculinity and high on Pragmatism and Indulgence. Canada is more confusing because it rates high on Individualism, low on Pragmatism, and high on Indulgence.

Eva Wimmers, CPO of Deutsche Telekom, one of the keynote speakers at the SCM World conference used the following diagram to differentiate between female and male leaders. I like the fact that she used quotes around the terms to indicate that these are not gender stereotypes, but rather characteristics of different personality types.

supply chain trevor miles gender blog


As you can see, there is a strong similarity between the characteristics Eva Wimmers uses and those promoted by Hofstede, but Eva is closer to my way of thinking that it is the sum of the characteristics that determines the type.

So are quotas the right approach to redress the imbalance of women in the supply chain?

I agree with Christina Da Luca that the approach to quotas needs to be different. On the other hand, there needs to be a goal, an objective against which we can measure success. Whether we call these goals quotas is a matter of semantics.

But quotas without a change in approach is unlikely to yield substantial and sustained improvements. And it is incumbent on us men to be active in this change of approach.  This was a key point Kevin emphasized on a number of occasions during the conference.


Posted in Miscellanea

Relieving the Pain Points of Supply Chain Management – Kinaxis & SupplyChainBrain Series

Published March 4th, 2014 by Melissa Clow 0 Comments

SupplyChainBrain attended our annual Kinexions user conference, and while there, they completed a number of video interviews with customers, analysts, and Kinaxis executives. And, we’d like to share them!

In this interview, Amanpreet Singh, senior director of strategy and operations with Motorola Mobility, discusses his career in supply chain, and outlines the major “pain points” that companies face today, in attempting to gain full visibility of supply and demand. Check out: Relieving the Pain Points of Supply Chain Management.

Previously, we featured interviews with:

Interview summary

Amanpreet Singh traces his supply-chain career to obtaining a Bachelor’s Degree in India. Coming to the U.S., he earned a Masters in operations and marketing, then held positions with i2 Technologies and PRTM before assuming his current job with Motorola Mobility, running operations for companion products.

Throughout his years in supply-chain management, Singh has seen companies grapple with several “pain points,” both at the customer and supplier end. They’ve had particular difficulty achieving visibility of second- and third-tier suppliers. Meanwhile, as the lifecycles of high-tech products grow increasingly brief, manufacturers are finding it more difficult to meet ever-shifting customer demand.

“Product introductions and end-of-life become very difficult challenges,” Singh says. “If products do not take off, you have a tremendous problem.”

Just getting accurate and timely sell-through data from retailers used to be a problem for manufacturers. That dilemma has been replaced by the need to know in advance exactly what the end user is going to buy. The “big unknown” today revolves around the proper pricing of a given product. Beyond that, suppliers need to foresee the next big trend that will make a particular device a hit with customers.

Relieving the Pain Points of Supply Chain Management - Kinaxis & SupplyChainBrain SeriesYet another challenge is the need to keep pace with those ever-evolving products, from the standpoint of aligning manufacturing, finance, marketing, sales and supply chain. “They all need to walk in lockstep motion toward common objectives and metrics,” says Singh.

How can that goal be accomplished? Outsourcing can help, although buyers and sellers must learn how to function with maximum efficiency, exchanging data on a real-time basis and knowing at all times what the other partner is going to do.



Posted in Miscellanea

Should We Forget About the Forecast? Supply Chain Interview Series

Published February 28th, 2014 by Melissa Clow 1 Comment

SupplyChainBrain attended our annual Kinexions user conference, and while there, they completed a number of video interviews with customers, analysts, and Kinaxis executives. And, we’d like to share them!

In this round table discussion, Kinaxis customer Jim White, vice president of central operations with Applied Materials; Jake Barr, chief executive officer of Blue World Supply Chain Consulting; and CJ. Wehlage, vice president of high tech solutions with Kinaxis discuss: Is the forecast really dead? Should companies instead shift their focus to acquiring the ability to respond quickly to whatever happens in markets?

Previously, we featured interviews with:

Interview summary

In this round table discussion, Kinaxis customer Jim White of Applied Materials, CJ Wehlage of Kinaxis and Jake Barr discuss: Should We Forget About the Forecast?

Product lifecycles are shortening to a “tremendous” degree, says Wehlage. Companies are looking to strike a balance between accurate forecasting and responsiveness. At the same time, they need to acknowledge that the forecast will never be completely accurate, and that the inevitable errors must be corrected by the ability to meet actual demand on a timely basis.

The role of forecasting is being clarified within the organization, says Barr, “but it’s not the end-all and the be-all.” The real purpose of forecasting is to engage in long-range financial planning. It can’t become the whole basis of running the business on a day-to-day level.

Barr said some companies have an erroneous conception of sales and operations planning. Its primary purpose is to identify and take advantage of new market opportunities, not to match demand and supply. “Folks translate it today into a place to elevate things that they can’t resolve within normal trading horizons,” he said.

SKU proliferation poses a growing challenge for retail manufacturers and merchandisers. But companies don’t need to engage in a “free-for-all,” whereby they continuously track every single product. “In reality, you have to review less than a couple of percent,” Barr said. “Twenty percent of SKUs make up 80 percent of your gross margin.” For the rest, “you just need to set some base conditions.”

White said companies are finding it necessary to both stretch and shrink their planning horizons. Suppliers need to acquire greater visibility of demand in order to engage in capacity planning. But manufacturers must also be able to adjust the forecast in line with unexpected demand shifts, essentially bringing planning down to the execution level.

Should We Forget About the Forecast? Supply Chain Interview SeriesBarr says planning has undergone “a true morphing” over the past five years. Companies are now depending on their operating models to be “the cash engines to drive growth.” The trend has led to greater use of “what-if” simulations and mid-range tradeoff scenarios. Such tools “weren’t on the table before.”

It takes more than technology to foster agility within the organization. “The I.T. piece follows; it does not lead,” says Barr. “You have to first figure out what is the reaction time you require to make your revenue and profit model. You change the business process, then you determine what technology you need.”

Posted in Miscellanea

The Eternal Dilemma of Decision Making: Human Judgment or Machine Optimization

Published February 25th, 2014 by Trevor Miles @milesahead 0 Comments

The Eternal Dilemma of Decision Making- Human Judgment or Machine OptimizationOf course I am playing off of the title of the movie “The Eternal Sunshine of the Spotless Mind”, a comedy with Jim Carrey and Kate Winslet, in which IMDB describes the plot line as

A couple undergo a procedure to erase each other from their memories when their relationship turns sour, but it is only through the process of loss that they discover what they had to begin with.

And this is the eternal dilemma of decision making too, only here the odd couple is human judgment and machine optimization.  In the movie the Jim Carrey character likes consistency and dependency while the Kate Winslet character likes uncertainty and discovery, with the obvious tension from these character differences coming to a boil.

Since the inception of APS (advanced planning systems) in supply chain in the mid-1990s we have focused on getting machines to make optimal solutions and eliminating the person from the decision process. This approach is captured best by the concept that even the smartest people can juggle no more than nine variables when making decisions. Since there are a lot more than nine variables that need to be considered when making a cross-functional decision in supply chain, the solution was to eliminate the people and let a machine make an ‘optimal’ decision.

It is time that we corrected this imbalance.

Whenever we treat one part of the supply chain in isolation, such as forecasting or inventory optimization, it does seem that there is an optimal answer that can be provided by a black box approach. But so many decisions we make in one function have a knock-on effect in other functions, which we seldom take into consideration when we focus on a narrow set of decision criteria applicable to one function.

For example, I know of several cases where optimizing inventory has led to less than optimal use of manufacturing assets. Of course the obvious next step is to ‘rationalize’ the manufacturing assets while focusing a lot of effort on greater manufacturing flexibility. But what if you get caught with a rapid and big shift in mix that has little net effect on revenue or inventory value, but has a big impact on capacity needs?

In addition, all too often we assume in supply chain that we have ‘a’ lead time – a single value – or a yield, or a throughput, or a batch size, or … when in reality all these variables have ranges. (As an aside, that is why they are called a variable.)  And then we calculate an ‘optimal’ one-number plan from these approximate input data, generating a result that is ostensibly more accurate than the input data.

We should be focused on a risk adjusted trade-off analysis across the supply network rather than a narrow functionally focused optimization. Of course people need systems to crunch the data. But I do not believe that we are served well by an approach that takes the person out of the loop. We need to couple machine speed with human judgment to make these trade-offs across competing objectives, the relative value of which changes based upon business conditions. For example, typically when revenue is on target margin is the primary focus, but when revenue is lagging, margin is a distant concern. People can handle these nuances and changes in emphasis far better than a machine.

There is a McKinsey article titled “When Toyota met e-commerce: Lean at Amazon” which brings out this dichotomy very well. The paragraph that jumped out at me is below, with my emphasis.

Given the business evolution of Amazon from a bookstore to the store for everything, we had to reinvent automation, following the lean principle of “autonomation”: keep the humans for high-value, complex work and use machines to support those tasks. Humans are extremely creative and flexible. The challenge of course is that sometimes they are tired or angry, and they make mistakes. From a Six Sigma perspective, all humans are considered to be at about a Three Sigma level, meaning that they perform a task with about 93 percent accuracy and 7 percent defects. Autonomation helps human beings perform tasks in a defect-free and safe way by only automating the basic, repetitive, low-value steps in a process. The result is the best of both worlds: a very flexible human being assisted by a machine that brings the process up from Three Sigma to Six Sigma.

Cyfin framework supply chainMachines should be focused on the ‘Simple’ and part of the ‘Complicated’ quadrants of the Cynefin Framework.  This is where scale and efficiency are important and can be realized through the adoption of ‘best practice’ processes. The traditional APS approach even has validity in the Complicated quadrant where the decisions are not that complicated, and can be codified, but a lot of data needs to be analyzed to determine the best path forward. Machines are more efficient than humans with this type of work.

However, we must also not lose sight of the fact that many decisions we need to make in supply chain lie in the ‘Complex’ quadrant. This typically where there are trade-offs to be made between customer service and cost, between capacity utilization and supply chain agility. In short, between efficiency and effectiveness. The answer is not obvious and depends on a multitude of external factors, often out of the immediate control of the team making the decision. The Complex quadrant is where we see every day disruptions in our supply chains which have a significant financial and operational impact; often due to several disruptions have a multiplying effect.  The Chaotic quadrant is where we see catastrophic disruptions such as earthquakes, floods, etc. While many companies have disaster recovery plans, determining the exact response to a specific incident often requires trial and error, something at which a machine is not very good, especially when the exact conditions have not been experienced before.

An interesting aspect of the Cynefin Framework is that the Simple and Chaotic quadrants are next to each other. This represents the fact that when we focus too much on efficiency, processes in fact become rigid and fragile. They are unable to absorb even small variations and disruptions. As importantly, the center shaded area is Disorder where we do not understand in which quadrant we are operating, the worst of all possible worlds. There is a great short introductory video to the Cynefin Framework that explains this is greater detail from about 6:30 minutes. The McKinsey article on Amazon’s use of Lean principles also captures the delicate balance between not over simplifying a process so that it can be automated, and therefore provides scale, and given people the flexibility to apply human judgment to situations, and therefore provide flexibility and agility.

I can only repeat: It is time that we corrected the imbalance between machine-based optimization and human-based judgment.

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