Posts Tagged ‘Manufacturing resource planning’

Do Supply Chain Planning systems generate any value?

Published September 8th, 2014 by Trevor Miles @milesahead 0 Comments

I have been in the advanced planning and scheduling (APS) space since 1995 when I joined i2 Technologies in Europe. Before that I was in management consulting doing what would be called supply chain design or reengineering today.

While MRP and S&OP were defined as early as the 1980s, these provided rough cut analysis at the aggregate level, nowhere near the level of detail that is possible today. The diagram below by Oliver Wight, with some enhancements by me, captures the progression of capabilities since the 1970s. My enhancements were to add the underlying technology and company information at the bottom which gives some context.

 Oliver Wright S&OP IBP

The key point is that I have spent a lot of my working life focused on the value generated by more advanced planning solutions.

It has been with some shock, therefore, that over the past few months I have come across a number of prospects, partners, and analysts that question whether any real value has been generated by all the investments in technology over the past 25 years. I have come to the conclusion that this needs some further analysis, which I won’t be able to complete in a single blog.

Let me start with the confusion between planning and execution. I was on a call last week with a large company in the food and beverage space that has spent $100s of millions, and many years, on an ERP deployment. And of course during the deployment their organizational structure has changed and they have gone through some M&A activity in that time. Needless to say they have a continued multi-year deployment of the supply chain planning system provided by the ERP vendor. And they are still a long way from complete from deploying the ERP modules let alone the supply chain planning modules. Now they want to deploy an S&OP process. They have piloted the process in Excel and know that they need an enterprise level solution for a global roll-out of S&OP. The issue is that none of their IT investments in the last 10 years have moved the needle on operational metrics such as inventory levels, case fill rates, and other operational metrics. Their words. As a consequence they are looking for tangible evidence of value before progressing with a global deployment.

paul meyer productivity quoteAbout a week before that I was at dinner with Mo Hajibashi of Accenture. Mo has been around this space about as long as I have and has seen all the changes. We were reminiscing about the trade exchanges that were so much part of the discussion in the late 1990s. Of course these largely went the same way as the rest of the dot com bubble. But Mo went on to say that many companies have struggled to quantify value from their investments in supply chain systems. We were there to discuss other topics so we did not dig too deep into his statement, but it stuck, and came roaring back when I was in discussion with the company I mention above.

In July, Lora Cecere of Supply Chain Insights kicked this all off with a blog on the Forbes web site titled “My Quest to Know …” in which she seemed to question the value of IT in driving value in corporate performance. She states that

As technologies evolved over the course of the last decade, there was a promise that investments in software like Enterprise Resource Planning (ERP), Supply Chain Planning (SCP) or Business Intelligence (BI) would improve corporate performance. I was a research analyst in the throes of this movement, writing article after article on how IT projects will drive corporate performance improvements. I believed it. I was a prolific writer and a committed disciple. I thought it would transform organizational capabilities.

While Lora and my paths are different, our trajectories are the same. I studied Industrial Engineering and Operations Research focusing on Optimization Theory. I lost faith in optimization early when I realized that the uncertainty in our knowledge of true capacity, yield, lead times, and hundreds of other variables drowned out the promise of optimization. And that is assuming that we have a good handle on demand, which we don’t. However, I still believe in the promise of greater productivity through replacement of slow and manual processes with fast and agile digital processes.

In other words, while I didn’t dispute Lora’s findings, I was puzzled by her conclusions of supply chain planning systems. She seemed to be saying that benefits have not been realized from deploying planning systems, which didn’t fit my understanding of her position. When I asked Lora about her blog she replied that:

Supply chain planning, while over-hyped, and under-delivered by many technology vendors and consultants, adds value. The companies that achieve the highest levels of performance, and balance, in corporate performance make the design of their networks and their planning processes a priority. It does not happen overnight, and does require the right fit of technology to drive greater potential. The factors are the right data model, a frequency of planning that reflects the rhythms and cycles of the supply chain, and the right level of granularity of the modeling. The best planning systems are implemented carefully based on conference room pilots and focus on modeling the business. As a result, the best implementations are usually not the fastest.

The market has been scarred by two issues: the bad behavior of the best-of-breed solutions in the first generation of solutions, and the lack of depth of the extended ERP solutions. As a result, there currently a gap between what companies want and what they have. However, excellence in corporate planning matters. The concepts improve the potential of the organization to deliver higher levels of balance sheet performance. The greatest value today usually comes from a best-of-breed solution that is implemented by the same best of breed provider. The over-hyped promises of extended ERP implemented by large system integrators as advertised on signs in airports has not driven the levels of value that the best-of-breed solutions have.

Perhaps we have been looking at the benefits of  supply chain planning systems too narrowly. There have been additional benefits, and Lora points to two of them, namely our ability to absorb supply chain complexity – Lora refers to product complexity – and become a lot more efficient as measured by revenue per employee. I consider these huge gains. How could Apple have grown like it did both in terms of product and market expansion without greater efficiency and the ability to coordinate the flow of materials throughout the world? How could Procter & Gamble have expanded into the emerging markets without forming a number of regional planning hubs?  (Please note that I am using company examples which are not Kinaxis customers deliberately so that I cannot be accused of bias.)

Planning systems do improve supply chain performance when coupled with process and organizational change.  Did anyone see that wonderful spoof in which a daughter gives her elderly father an iPad who then uses it as a cutting board? This is Lora’s point. Lora is running the Supply Chain Insights Global Summit next week in Phoenix, and one of the agenda items is about the Supply Chain Index she has been working on. Unfortunately I cannot be there. I’d really like to be in the session that discusses the supply chain index Lora is developing.

us manufacturing output jobs

As I have stated already, the real question is what would have been the cost of running these massive supply chains without the IT investments? While we might have exhausted the benefits to be gained from large ERP deployments, I am not at all convinced that we have got even close to 50% of the efficiency gains we can achieve with new solutions based more on consensus building and collaboration than on optimization. I am one of those gray-haired men Lora’s refers to in her blog, but I am also a ‘digital native’, something that cannot be said about most of my contemporaries, who are typically ‘digital immigrants’ at best. Yet my contemporaries are the ones making large decisions about organizational structures, processes, and solutions that are rooted in mental models developed and perfected in the 1970s and 1980s. And far too many of the analysts and management consultants continue to position these mental models as best practice. They are not; They are yesterday’s practice.

digital natives versus digital immigrants

But let us step back from my polemic and look at the data. Of course it is impossible to separate out the investment in planning systems from robotics and other technology investments.  But we can look at the ‘digital revolution’ as a whole and make some pretty broad assumptions and correlations with planning systems. First of all this isn’t a recent topic. As early as 1990 Erik Brynjolfsson of MIT published an article titled “The Productivity Paradox of Information Technology: Review and Assessment” in which he cites even earlier analysis of the topic. Erik states that:

The relationship between information technology (IT) and productivity is widely discussed but little understood. Delivered computing-power in the US economy has increased by more than two orders of magnitude since 1970 (figure 1) yet productivity, especially in the service sector, seems to have stagnated (figure 2). Given the enormous promise of IT to usher in “the biggest technological revolution men have known” (Snow, 1966), disillusionment and even frustration with the technology is increasingly evident in statements like “No, computers do not boost productivity, at least not most of the time” (Economist, 1990).

erik brynjolfsson raching with the machine

However, in a subsequent article published in 2003 and titled “Computing Productivity: Firm-Level Evidence” Erik states that

We explore the effect of computerization on productivity and output growth using data from 527 large US firms over 1987-1994. We find that computerization makes a contribution to measured productivity and output growth in the short term (using one year differences) that is consistent with normal returns to computer investments. However, the productivity and output contributions associated with computerization are up to five times greater over long periods (using five to seven year differences). The results suggest that the observed contribution of computerization is accompanied by relatively large and time-consuming investments in complementary inputs, such as organizational capital, that may be omitted in conventional calculations of productivity. The large long-run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s.

In other words:

  • There is a sufficient business case in the short term (12 months) to justify IT investments
  • While there is a significant delay between the investment and the full gains in productivity, the gains too are massive, much greater than first assumed

In the paper “Computers, Obsolescence, and Productivity” published by the Federal Reserve Board in 2000, the author, Karl Whelan, states that:

Real business expenditures on computing equipment grew an average of 44% per year over 1992-98 as plunging computer prices allowed firms to take advantage of ever more powerful hardware and, consequently, the ability to use increasingly sophisticated software. These developments have helped improve the efficiency of many core business functions such as quality control, communications, and inventory management, and, in the case of the Internet, have facilitated new ways of doing business. They have also coincided with an improved productivity performance for the U.S. economy: Private business output per hour grew 2.2 percent per year over the period 1996-98, a rate of advance not seen late into an expansion since the 1960s.

This is enough evidence for me. At the same time I have no doubt there has been extensive over promising and under delivering, and bungled deployments. Do we really want to go back to typing letters and mailing them to customers and suppliers? Do we really want to use a manual planning board to plan the purchase of components and assembly of a tablet that occurs in multiple continents across many organizational boundaries?  I am highlighting where many of the productivity gains have already been realized.

It is going to require a new generation of ‘digital natives’ in senior positions making decisions about organizational structure, processes, and supporting technology before we realize the full potential of IT investments. And the benefits we have realized so far are enough to justify continued investment.

human evolution technology

Posted in General News, Milesahead, Sales and operations planning (S&OP), Supply chain management

Another Link In The Chain: Connecting Project Management to the Supply Chain

Published September 28th, 2012 by Dan Nowicki 4 Comments

For many companies, it remains a significant challenge to bring projects in on time, on budget, and delivering expected results. This is particularly true for organizations that manage large, materially-intensive projects.

Many software tools and solutions are available that support Project Management but very few fully model the interdependence between projects and material supply, a key project resource.  Businesses that do have the ability to link project schedules to the supply chain can actively manage the impact material availability can have on project schedules.

Problem – Changes in material supply, product orders, customer forecasts, or staffing resources can have a significant impact on project schedules in terms of having to accelerate or delay project delivery. Often, these supply and demand changes take too long to show up in project management schedules, resulting in missed milestones, “throw away” work, penalties, and cost overruns.

Need – Enterprises need a single management system that breaks down the silos between human resource management, supply chain management, demand planning, cash management, and project management to ensure that physical and human resource utilization is maximized.”

In fact, we’ve just published a white paper on this very subject.  The paper describes an integrated approach to project management which enables an organization to model all their projects and their entire supply chain together in one environment. I recommend checking it out to understand the business case for linking project management to the supply chain and to understand the specific capabilities that should be included.

With the question of why integrate project management with the supply chain answered, I offer some further insight into the how. In this, and upcoming posts, I’ll walk through the various considerations for establishing the link.

Implementing the New Link between Project Management and the Supply Chain.

Implementing Project Management tools linked to the Supply Chain is similar to the move from stand-alone MRP tools to integrated ERP solutions.  In a MRP to ERP transition, a major challenge is bringing finance and supply chain/operations departments together to understand each other’s data and functional needs, then configure both software and business processes to meet the new requirements. Adding project management to the mix and linking this function to the supply chain/operations and finance groups (who are hopefully already running flawlessly together in their connected ERP environment) presents similar challenges.

Implementation Success Factors
Successfully integrating project management capabilities with supply chain data includes;
1. Identifying variable(s) linking project management to the supply chain.
2. Knowing/Managing the data that impacts the linking variables.
3. Defining linking strategies.

Identifying key variable(s) should be the first focus.  A ‘key’ variable is one that if it’s changed by one department, the change impacts decisions and metrics used by another.

For example, when shifting from MRP to ERP systems, a key variable is the goods movement transaction.  Once linked, goods movement transactions result in real time shifts of assets in financial summaries.  In a RapidResponse example, the Constraint Management Resource was added in a recent release; key variables linking the Constraint Management Resource to Planning Resources were constraint capacity variables.  If constraint management is utilized, real time changes in Planning Resource data occurs as constraints are changed.

With the introduction of the RapidResponse Project Management Resources, the key variable linking it to RapidResponse Supply Chain Resources is the linked order ‘Material Availability’ date (the date an order is expected to be available given other supply chain dependencies.  This often varies from an order due date).  Changes in material availability can be configured as a hard link to immediately automatically shift project management tasks in or out, or a soft link to allow for warnings when out of sync that must be manually acted upon.

In all of these examples, configuration settings and business processes for the existing software/RapidResponse Resources were defined before the new linked software/Resources were adopted.  They weren’t initially set-up to meet needs of linked software/RapidResponse Resources/departments.  In the pre-implementation phase it’s time to re-evaluate, and as needed, re-design business processes and software configurations to ensure the key linking variables meet goals of all parties to minimize “discovering” them in the course of normal daily work.

In this latest integration effort, one doesn’t want to link project management tasks to orders without first communicating with the supply chain group to understand how material availability changes over time.  In some cases, shifts in order material availability may be the ‘exception’ that project management should be aware of immediately.  However, in other cases, material availability may have significant swings on daily/weekly basis.  Are both situations acceptable to directly impact a project management schedule with a hard link?  Should a soft link be used where only warnings appear to be manually reacted upon in the Project Management Resource?   What is the root cause of the variance and should/can it be eliminated?  All are good questions for…

Future Posts…

  • Do you know your data?
  • To Link or not to link. That is the question.


Posted in Control tower, Supply chain management

Part 2: Does the Art of Scheduling Still Exist?

Published November 30th, 2011 by Ray Karaffa 2 Comments

Click here to view Part 1: Does the Art of Scheduling Still Exist?

In the late 1980’s I was working for a large government electronics manufacturer located in Scottsdale, Arizona.  This was the first time that I was on a complete MRPII (Manufacturing Resource Planning) implementation team.  My duty on this team was that of a Training Instructor, responsible for the development of the training materials and the facilitation of the courses.

During the initial training sessions I attended given by the software developers, one of the instructors introduced me to a field I had never heard of called fixed Manufacturing Lead Time Override.  He explained that it was to be used on an exception basis.  True manufacturing lead times were always to be used but on occasion, when some assemblies were bought outside or brought in from another division, you could temporarily override fixed and variable elements of true manufacturing lead times.

To my surprise, at completion of the implementation, fixed Manufacturing Lead Time Override was, in fact, the norm and not the exception.  All of the make parts were being planned utilizing fixed lead times.  This means that once you set a fixed manufacturing lead time, all of the manufacturing orders will use this one lead time.  If you have a 10 piece spares order, it will be back-scheduled with the same lead time offset as a 1,000 piece manufacturing order.  There is no variable element to give the 1,000 piece manufacturing order the correct amount of lead time it deserves.

When I questioned the use of Manufacturing Lead Time Override, I was told that the studies that were conducted found that the start dates of the assembly manufacturing orders were only off by about 2 – 3 manufacturing days and usually within the same week.  Besides, it takes a lot of work to come up with all of the move, queue, setup and runtimes and it is much easier to input one Manufacturing Lead Time Override.

I believe that there is a law of physics that states “The whole is equal to the sum of the parts”.  We aren’t just building and shipping assemblies, we are building an entire product.  If you have ten levels in a bill of material and you short all of the assembly orders by 2 – 3 manufacturing days, you are shortening the planned build schedule of the product by an entire manufacturing month along with scheduling the purchased material to support that product build by the similar amount.

The 2 – 3 day start date variation argument might hold water if you are just shipping spares assemblies but from a Master Production Scheduling viewpoint that is concerned with forecasting and shipping finished product it results in a crapshoot.  That’s right, MPS success then depends on the roll of the dice.  The manufacturing order quantities that closely align with fixed manufacturing lead times will succeed but the ones out of alignment will fail.  What makes it an even bigger crapshoot the fact that very seldom will you ever wind up with all of the manufactured order quantities for a finished product that align properly.  The odds against that go up as the number of levels in a bill of material increases.

Fixed manufacturing lead times appear to be the norm in just about every company I’ve come in contact with and so my question is:  Does the art of scheduling still exist?

Those senior schedulers were undervalued by their company but in my opinion, they were worth their weight in gold.  Who knows, if we redeveloped the art of scheduling, we might be mass producing aircraft as fast as they did back in WWII and maybe a 2012 Chevy Bel Air might cost $2500 again.

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Posted in Best practices

Part 1: Does the Art of Scheduling Still Exist?

Published November 29th, 2011 by Ray Karaffa 1 Comment

The definition of sched·ule: a plan of procedure, usually written, for a proposed objective, especially with reference to the sequence of and time allotted for each item or operation necessary to its completion.

An early practitioner who became famous in our field, Ollie Wight, described a good, realistic schedule as basic and fundamental to the health and integrity of a good MRP planning process.  He also described the aftermath result of poor unrealistic scheduling as the informal systems of hotlists and shortage meetings engulfing the formal planning process.  The MRP planning process still exists, today, in its original form, as the foundation of our evolved MRP, Closed Loop MRP, MRPII and ERP systems.

Back in 1973, I was a young college graduate living in Columbus, Ohio.  I was very fortunate in my first job as a Materiel Controller (Buyer/Planner) to work with the first computerized MRP software package developed by IBM and APICS, the IBM PICS (Production and Inventory Control System) Package.  During those two years I learned a lot about the computerized MRP planning process and wondered how this complicated and detailed process was ever achieved prior to the invention of the computer.

IBM in cooperation with APICS modeled this software package from the most efficient manual planning processes of manufacturing companies such as Steelcase and Black and Decker.  These manual planning systems utilized Fixed Lead Times for purchased parts and a combination of fixed and variable lead time elements (fixed move, queue, setup and variable run time per unit) for the manufacturing lead times of make assemblies. Mfg. LT = Move + Queue + Setup + (Order Qty. * Run Time per Unit).

A week after being walked out the door due to the 1975 recession I found employment again in Columbus, as an Inventory Control Analyst (Shop Floor Scheduler) for a heavy equipment manufacturer of electric driven coal mining machinery.  This company was in business since the late 1800’s and it was there I found the manual planning process that preceded computerized MRP planning.  It was a complete manual MRP planning process utilizing Acme Visible index cards with lots of clerks running around posting entries to transactions.

I had to be totally retrained by some senior schedulers who wore green cellophane visors as headwear and striped long-sleeved shirts with arm bands.  I thought to myself that these were the type of schedulers who planned the production of the bombers of WWII and the 1957 Chevy Bel Air.  Wow!

There was one retraining session that will always remain in my mind.  The senior scheduler was judiciously studying one of his ledgers and said to me “Here, we have to create two manufacturing orders for this gearbox assembly, a 10 piece order for final assembly and a 5 piece order for a spares requirement.  They are both due on the same due date but we have to release the final assembly order on June 1st and the spares order on June 15th”.

I questioned him and asked since the orders were both for the same gearbox and due on the same date, why not set the release dates the same for both orders?  He stated that the orders were for different quantities and releasing them both on the same date would unnecessarily overload the broaching and Bridgeport machining operations.  He was doing CRP in his head!  He was also using the true manufacturing lead time elements of move, queue, setup and runtimes so the smaller quantity spares order could be released at a later date than the larger quantity production requirement.

The most important lesson I learned from the senior schedulers was the impact of the accuracy of the true manufacturing lead time elements to the success of the overall schedule.  The lead times elements had to be accurate with as little padding as possible.  Too much padding and you will overload limited resources and start the jobs too early along with bringing in purchased material too soon thus inflating inventory levels.  Too little padding or lack of lead time would release the jobs too late and not give the shop floor enough time to complete the orders on time.  Too little manufacturing lead times also schedules the purchased materials in too late and then when the informal shortage meetings are held you are in a constant expedite mode to move up the jobs on the shop floor and pull in the purchased material.

Stay tuned for part two tomorrow where I’ll discuss Manufacturing Lead Time Overrides.

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Posted in Best practices, Sales and operations planning (S&OP)

The quirks and quarks of the supply chain?

Published November 14th, 2011 by Trevor Miles @milesahead 0 Comments

While driving around town on Saturday doing some errands I had the radio tuned into a CBC program appropriately called Quirks and Quarks.  Luckily my daughter wasn’t in the car otherwise the radio would have been tuned into one of the pop music channels and I would have missed a really interesting discussion by Lisa Randall, whom the NY Times describe as “… a professor of physics at Harvard and one of the more original theorists at work in the profession today.”

What caught my attention, and made me late for an appointment, was when the discussion turned to what was right or wrong about Newton’s Laws of Motion and Law of Gravity, which are so apparent in our everyday lives. I am an engineer by training and therefore I have a greater interest in the pragmatic than the theoretical, so when Prof Randall challenged the interviewer’s comment that Newton’s Laws have been proven to be wrong I was very interested. Prof Randall’s comment was that it isn’t so much that Newton’s Laws are wrong, but rather that they do not apply in all circumstances. In the scale of everyday life – time, size, distance – they are extremely good at predicting, for example, the flight of a football out of Tom Brady’s arm, to the distance a car will take to stop given its speed and the surface area of its tires on the road.

Prof Randall went on to explain that it is at large distances (universe scale distances), high speeds (approaching the speed of light), and very small distances (micro-atomic sizes) that Newton’s Laws fall apart. The pragmatic engineer in me scoffed “who cares?!”  But she had a really interesting point that at high speeds, the more fundamental theory that emerges is Einstein Law of General Relativity. And if we go to really small distances, the more fundamental theory that emerges is Quantum Mechanics. She went on to say that while we wouldn’t ever calculate the trajectory of a ball using anything other than Newton’s Laws, these other theories are more fundamental. Of these, Prof Randall says that Quantum Mechanics is “…more violating to our intuition…the idea that there are probabilities rather than definite predictive statements.”  Perhaps most intriguing to me is “dark matter”, which Prof Randall says is “…defined by the property that it interacts weakly. It interacts gravitationally, but it doesn’t interact with light…so it can’t be detected.

So what has this all to do with supply chains?  Well little directly, but there are analogies that bring out concepts that aren’t necessarily new, but are not that well understood.

First and foremost is that for the most part, we treat the supply chain as if it conforms to the APICS definition of Manufacturing Resource Planning (MRP II), which I see as the equivalent of Newton’s Laws, meaning that MRP II certainly has merit but does not necessarily apply or is sufficient for all circumstances, and I contend that the number of circumstances in which MRP II is relevant is diminishing. I include the Oliver Wight standard supply chain planning processes in this perspective. For the most part MRP II can be used to generate a good plan.  But, and it is a big but, the business context in which we operate supply chains has changed sufficiently so that we need to reevaluate some of our approaches to the topic.

So what is different?

  • Large Distances/Dark Matter
    Globalization and outsourcing have extended supply chains to the point that many products have circled the world several times by the time we buy them from a retail shelf.  And the full effects and costs of moving materials such large distances are only recently being understood with concepts such as Total Landed Costs (TLC), but as the article referenced points out, TLC is not easy to calculate because of constantly changing fuel prices and labor costs, but more importantly because there are so many factors that go into getting an accurate measure of TLC that the author states “I wondered if it was even possible to accurately calculate a company’s true landed costs.

    If you can’t measure it, you can’t manage it.

    Well, not to the degree to which we would like to think we can manage it.  And I contend that the degree to which we can measure and manage TLC decreases exponentially with an increase in globalization and outsourcing, which is consistent with Complexity Theory. This is because not only is it difficult to get a good initial/annual measure of TLC, but also that the variables that go into calculating TLC are changing constantly and, in some cases, are barely recognizable from the assumptions made a year ago during a budgetary cycle.

  • High Speed/Relativity
    Ok, so I am a late Boomer, and every generation has thought that life progresses more quickly, but few can argue with the fact that especially since 2008 we have seen huge and frequent swings in business cycles compounded by natural disasters.  In fact, we can extend this observation to the mid-1990’s as the internet began to take root.  As an aside, I had a great-grandmother who died at the age of 98 in 1974, so she would have been born in 1876.  In her life time, she experienced the advent of electricity, cars, steam ships, television, telephone, x-ray, penicillin, … Wow.  Back in modern life, we see the ever shrinking product lifecycles coupled with the ever shrinking dominance of companies.  Who would have predicted in 2005 that by 2010 Microsoft would be a “has been” in terms of driving innovation and change?  Oh, I know there are lots of people that will raise their hands now and say “I did. I did.” But these voices were few and far between in 2005.

    Perhaps we haven’t reached the point of warping the time and space continuum, but it does feel to me that we have reached the point that the speed of business has increased to the point that we need to examine the processes and manner by which we operate companies.  I am definitely hearing a lot more about rolling budgets, quarterly budgetary cycles, and even ad hoc or continuous budgetary cycles. I am definitely hearing and reading a lot about the merging of Financial Planning & Analysis (FP&A) with Sales & Operations Planning (S&OP). Perhaps I am hearing about these two processes being executed in lock-step whereas in the past there was minimal interaction.

    By warping, I mean changing processes to accommodate the speed of business. We cannot accommodate new scales of speed using organizational structures and business processes designed in the mid-1900’s.

  • Small Distances/Quantum Mechanics
    This is the one that is really near and dear to my heart, because, as Prof Randal says, this is the one that challenges our intuition because of “…the idea that there are probabilities rather than definite predictive statements.” Most of us who work in supply chain management or operations are engineers, if not by training, then at least by nature.  We believe in things that are tangible, measurable, predictable.  So what do we do with systems that are not fully predictable?  We assume that they are predictable, and, even worse, we act as if they are predictable. The most obvious of this phenomenon in business is the uncertainty related to the revenue/sales forecast.  We use terms such as demand variability or demand volatility instead because they imply that yes, demand is variable/volatile, but it is predictable, if only we knew all the variables required to predict demand exactly. But the term uncertainty makes us feel, well, uncertain. How can we have confidence in our models if we are uncertain about a key input variable?

    But uncertainty permeates supply chains and operations. From yield uncertainty, to cycle time uncertainty, to transportation lead time uncertainty, to new product adoption uncertainty.  And many more. I contend that we are far better advised to focus on the skills and processes required to be agile in the face of uncertainty than in the effort to understand “all” the causes of uncertainty and, by extension, to try to remove all uncertainty from our understanding of the market conditions in which we operate.

    Planning is important, but the skills and processes for early detection of discrepancies between reality and what we predicted, and the agility to respond quickly and profitably to these discrepancies should be equivalent skills.

    Let us learn how to absorb and respond to uncertainty rather than thinking we can design it out of our operations and processes.

My take is that each of the concepts that Prof Randall described as challenging Newton’s Laws have an equivalent not only in supply chain management, but more importantly in the more general concept of Business Operations, which, in Wikipedia, is defined as:

The outcome of business operations is the harvesting of value from assets owned by a business. Assets can be either physical or intangible. An example of value derived from a physical asset like a building is rent. An example of value derived from an intangible asset like an idea is a royalty. The effort involved in “harvesting” this value is what constitutes business operations cycles.

As we can see from this definition, supply chain management is a more specific definition of Operations applied to companies that have physical products, but even in these companies Operations is a broader concept that relates to the business activities that even manufacturing organizations carry out in order to satisfy customer demand and, hopefully, make a profit, including Marketing, Product Design, etc.

In other words, balancing supply and demand of anything is everything.

As always I welcome comments, arguments, and contrary opinions.  They drive our collective learning.

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Posted in Milesahead, Miscellanea, Supply chain management

My first 90 days – Day 9: The importance of history

Published September 9th, 2011 by Kirk Munroe 0 Comments

Another great week – we’re working on some really exciting stuff! Don’t forget to check out my blog regularly to follow me during my first 90 days at Kinaxis. Here’s a post from Day 9:

Had a great conversation today with Duncan Klett, one of our founders and our current VP of Analytics.

Duncan shared the story about working at Mitel in the mid-1980′s and how the MRP system they used took 40 hours or so to run one cycle.  The MRP would run the cycle over the weekend and they were only running off a weekly snapshot because of the time it took to do the necessary calculations.  Imagine the challenges if someone entered bad/incorrect data late on a Friday.  On Monday, the company would be faced with the decision of running with a view into the business that was almost two weeks old (the one run the previous weekend) or decide to shut down production for two days and wait for the MRP to run.

Duncan, along with a small team, developed a solution to address the need to be more nimble in the manufacturing and supply chain process.  As hardware and software were much more closely coupled in those days, the solution was a piece of hardware that allowed the processing to occur 1000 times faster than the MRP system.  You can imagine the breakthroughs in how nimble the supply chain management became between MRP runs!

Fast forward through over 25 years of technology development, the decoupling of software from hardware, the certification on IA64 almost ten years ago, through today’s software which scales to over 1 TB – in memory!  Combine this with the experience of helping hundreds of companies become more responsive in both the supply and demand sides of their supply chain, working both inside and outside the walls of their own enterprises, combining data and process from not only different sites, but different corporations and you have a solution in RapidResponse that is very unique.  These technology and business process advances, learning from both successes and stumbles, are a big part of what makes our secret sauce so special.

It is easy to forget or disregard the past in the high tech, fast paced world in which we live, but the past is often the biggest factor in predicting the future.  Looking at our past, I am confidently predicting a very successful future, one that other companies are not going to be able to duplicate.

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Posted in General News, Miscellanea