Where did you grow up?
Born in St. Louis, MO.  Lived in Florida, Washington DC, Texas and Michigan growing up

Favorite book/movie/song?
Best book I read recently, The Help by Kathryn Stockett

Best advice you ever got or favorite motivational quote?
Best quote I use with my kids and still holds true for me…”You get what you get and you don’t get upset.”

What book are you reading now?
Not a recently released book, Shining Through by Susan Isaacs

What single piece of counsel would you offer to your colleagues in supply chain for the remainder of 2010?
Prepare for the unexpected

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!

Drivers include:

• SKU proliferation
• Demanding customers and high competition
• High product variety and customization
• Increase in total inventory and high obsolescence

Ideal candidates for postponement are products with:

• Short life cycles
• High variety / options to customers
• High value profile
• Standardized components and modular design

We too are seeing among our customers and prospects (particularly those in the high tech and electronics space) a growing interest and focus on postponement.  A great deal of agility and flexibility can be attained when a company can ship sub-assembly inventory and finish it locally.  But as these new supply chain management strategies evolve, so too does the complexity of the supply chain.  Advance supply chain strategies require the associated advance technology solutions to enable them, and that may limit the number of companies who can successfully apply the practice and harness its benefits.

Is postponement a growing topic in your company?

The first is an annual Gartner Supply Chain Study, in which they partner with Supply Chain Digest and survey their readers.

A few excerpts of the stats as pulled from the Supply Chain Digest article….

• Top Barriers to Achieving Supply Chain Goals: Forecast accuracy/demand variability (59%) , Supply chain network complexity (42%), Lack of internal cross functional collaboration and visibility (39%)
• “improving planning processes” was cited by respondents as the number 1 supply chain investment priority
• 27% of respondents said supply chain excellence was a main or key differentiator for their companies; 47% said supply chain was one of several differentiators, while 26% said SCM was a necessary function but not a differentiator to their firms.
• the preponderance of companies (55%) describe themselves as “mainstream” in their approach to technology adoption, versus just 13% “aggressive” and 32% “conservative.”
• the number 1 imperative of supply chain initiatives was to “improve efficiency and/or productivity,” followed by “reducing operating costs”

Most of the results are disappointing in my opinion.  For as much as people are saying that supply chain is strategic and breeding innovation in an organization, these survey results would suggest not so much; in fact, over a quarter still consider it only a necessary function, not a differentiator at all. And for the majority, their associated approach to technology adoption is “mainstream” at best. Some of the responses appear to indicate that supply chain strategy  continues to be the “same old, same old”.  Case in point: the number one challenge is variability, yet the #1 investment priority is improving planning processes. Companies are still trying to plan their way out of their problems.  With the complexity, volatility and risk inherent in today’s business environment, even the best laid plans will be obsolete as soon as you leave the planning meeting.  What’s needed is a capacity to respond to change and reconcile plans on a continuous basis, not as part of a fixed planning cycle.  When is that going to be widely recognized?

I also came across the PRTM Global Supply Chain Trends Report 2010-2012 (free download with registration) which was another validator that there is certainly room for improvement in companies’ supply chain strategies.

The report asks the question: Are Our Supply Chains Able to Support the Recovery?  PRTM highlights five key trends in this context:

1. Supply chain volatility and uncertainty have permanently increased
   Market transparency and greater price sensitivity have led to lower customer loyalty. Product commoditisation reduces true differentiation in the consumer and business-to- business environments.
2. Securing growth requires truly global customer and supplier networks
   Future market growth depends on international customers and customised products. Increased supply chain globalisation and complexity need to be managed effectively.
3. Market dynamics demand regional, cost-optimised supply chain configurations
   Customer requirements and competitors necessitate regionally tailored supply chains and product offerings. End-to-end supply chain cost optimisation will be critical.
4. Risk management involves the end-to-end supply chain
   Risk and opportunity management should span the entire supply chain—from demand planning to expansion of manufacturing capacity—and should include the supply chains of key partners.
5. Existing supply chain organisations are not truly integrated and empowered
   The supply chain organisation needs to be treated as a single integrated organisation. To be effective, significant improvements require support across all supply chain functions.

The study indicates that companies believe there will be a significant upturn in demand from their customer base as well as a significant increase in company profitability over the next few years. The real question is whether this expectation from the survey is from the usual appreciation of business cycles that have long been through expansions and contractions? Or is it from a collective impression that things are in fact getting better? Regardless, one key point is that the findings also indicate that many companies lack the capabilities critical for meeting growing demand or for managing an increasingly complex and global supply chain. Companies need to understand how to capitalize on the optimism of a growing consumer demand by ensuring they have the most up-to-date capabilities.  But no matter what happens with consumer demand, supply chain visibility and supply/demand balance is crucial to a company’s success at all times and during every type of condition.

While I am at….a quick plug for the supply chain expert community, go answer the question posted there of which of the 5 trends resonates the most for you and your business? Is there another trend you’re seeing that should have made the list?  Could end up being a good debate.

• Both are filled with unplanned events. Italy out? England out? That was not in the plan. There will always be surprises no matter how much you plan. However, the challenge of unplanned events in the supply chain is that you have to make course correction very quickly. If you miss the finals in the World Cup, you have another 4 years before you need to execute an improved outcome.
• Not meeting expectations has a significant financial impact. Businesses disappoint shareholders and affect stock price and risk market share erosion. Soccer teams affect their economies. Italy’s early exit is estimated to cost their economy $177Million US , just in the restaurant/bar business.
• Time to market can be short. Think of the businesses that are waiting for the World Cup winner and want to have their products on the market first.
• Communication and collaboration is critical to succeed. While soccer is on and off the field : supply chain is often across continents.
• Both need to strategize scenarios. In soccer, the team evaluates the potential outcome of different plays. In supply chain, you need to evaluate the impact of demand, supply or new product introduction scenarios.
• Provided with the right tools to do their job, every team member will be empowered to do their best, strengthening the team.
• In order to excel, you need to have a vision. Your vision needs to place you ahead of your competition. Don’t listen to those around you that make excuses as to why the vision cannot be executed. Just ask Cisco or Apple. There are reasons why they are leaders in supply chain. As to the winner in the World Cup?? We will have to wait and see.

Do you have any analogies to share? What is your prediction for the World Cup ?

• Strike Halts Honda’s Production in China
• Honda Offers Pay Raise to Chinese Strikers
• Honda’s Chinese Parts Plant Resumes Full Operations
• Honda Resumes Car Production at Two Assembly Plants in China
• Japan’s Brother Says Hit by China Strike
• Foxconn Gives China Workers Dramatic Wage Hike
• Microsoft Opens Probe after China Factory Report

Foxconn, Honda, Brother have all been the target of labor disruptions driving higher labor costs.   Foxconn and Microsoft are both mired in reports of poor working conditions.  While China’s communist government doesn’t officially allow unions, they seem to turn their head at labor protests – so long as the protest doesn’t appear to be critical of government policies.  

Is it any wonder that this is happening?  Prices for electronics have been pressured downwards continuously over the past several years.  Just look at the cost of a laptop today compared to a few years ago.  Almost a 1/3 the cost.  While some of these reductions are due to economies of scale and improved manufacturing techniques, much of the savings is because of the low cost of labor.  Even still, factory wages are significantly more than a typical Chinese worker could make farming or as a laborer in the rural parts of the country, and so workers flocked to the factory towns.  As a result, China’s workers started having a disposable income.  Money for televisions, cell phones, bicycles and automobiles.  The same desire that drives consumption in the West, is starting to permeate life in China.  The Chinese worker wants the same things that you and I want.   Can you blame them?

So what do these changes mean for us?  To a certain extent, we will need to accept that things will get more expensive (in the case of electronics, the downward price trend will slow and perhaps even reverse).  Chinese workers will continue to demand fair wages and better working conditions (as they should!). But these changes can continue only to a certain point.  At some point (as it did in North America, Europe and Japan), the wage pressures are going to increase to the point that the advantages of doing manufacturing in China will start to disappear and China will transition from being a low cost supplier of goods to a net consumer of goods.   At this point work will be moved to the next hub of low cost labour (India?  Africa?). 

My advice for companies with manufacturing in China?  First and foremost, take notice of the working conditions in the factories.   It doesn’t matter that the contract manufacturer is a separate company with their own policies, it is your company name and brand that is attached to the product. Have a plan in place in case your manufacturing source (or their supplier) goes on strike.   Also, (and I’m sure this is something that you are doing already),  closely monitor the costs from your manufacturing operations.  At some point, costs will rise to the point where you will need to start looking at other sources. The sooner you recognize that point, the better off your company will be.  

Before looking for another low cost offshore location to manufacture your goods, consider bringing your manufacturing back to North America.  While labor costs would be undeniably higher, these additional costs might just be offset by reduced lead time, reduced transportation costs, improved quality, reduced risk and improved goodwill.   Just a thought.

Much has changed over the years since the 1980’s when few knew the term Supply Chain Management (SCM) and even fewer knew what it meant, including me.  The closest one could come to study SCM at university was Operations Research or Industrial Engineering.  Having done this at the graduate level, I can attest that the focus was very much on factory optimization with little emphasis on the inter-connectivity between demand, production, and supply. 

I remember going to a pulp and paper manufacturer in Florida in the mid-1980’s because they wanted to optimize the utilization of their digesters, even though they were at over 90% utilization.  It didn’t take long to discover that there was over 9 months of finished goods and over 4 months of raw material on site.  I had no idea and never bothered to find out how much finished goods inventory there was in the distribution channel.  Clearly, the company’s supply chain problems were not related to the utilization of their digesters.  However we had been brought by the plant manager to optimize the digesters and he had no responsibility for either raw material (Purchasing) or finished goods (Sales) inventories.  The question we were faced with was who owns the problem?  We could have gone to the Sales VP or to the Purchasing Director, but they each only owned a part of the problem.  Notice also the titles of the people responsible for Sales, Production, and Purchasing.  Eventually we managed to get a meeting with the CFO on the pretext of getting data for production costs.  The CFO was a lot more receptive to our message but really didn’t own the problem either, so he sent us to the CEO.  He thought we were a bunch of engineers, and he was right.  We couldn’t really articulate the issue in a manner in which he would understand.  Somehow, we managed to get enough across to the CEO to ensure that project focus changed to profitability rather than capacity utilization.

And yet, in a recent study by SCM World and Aberdeen titled “The Evolving Role of the Chief Supply Chain Officer”, there still appears to be a mismatch between the expectations of the C-suite and the people actually running the supply chain.  There have been a lot of positive developments since the 1980’s including the establishment of university courses and the knowledge of the function and strategic value of SCM within the C-Suite.  The use of the term “chief supply chain officer” is a testament to this change.  While the gulf between the C-suite and operations has narrowed, the very first chart in the SCM World report indicates a mismatch in objectives and perception.

The good news is that the C-suite is focused on using the supply chain as a competitive weapon; however, it reminds me of Peter Drucker’s definition of the difference between being effective and efficient.

“Efficiency is doing things right; Effectiveness is doing the right things.”

Perhaps this is the correct split in which the C-suite focuses on what should be done, while the rest of the organization focuses on doing this in the most efficient manner. The SCM World report indicates that there is a much closer alignment between the C-suite and the rest of the organization when it comes to the areas of efficiency gains.  However, even here it appears that the C-suite has a greater focus on the more strategic goal of restructuring the supply chain organization (effectiveness), whereas the rest of the organization has a greater focus on reducing inventory (efficiency).

I think there is still the need for people in the supply chain to understand the objectives and perspectives of the C-suite and to align themselves with these, and to communicate in the language of the C-suite.  The arrival of the “chief supply chain officer” in the C-suite is certain to close this gap.

Planning & Execution

Some months ago, Lora Cecere wrote a blog post about the gap between planning and execution, what she calls the supply chain black hole. 

Lora states that:

Technologies are evolving to eliminate the supply chain black hole. In this first generation of supply chain applications, we have built a fixed response with very little sensing. 

How can we effectively respond when we cannot sense?

Lora goes on to state that

The first generation of supply chain applications got us started down the path, but they must be cast-off to move forward.  ERP is not the backbone of supply chain management for the future.  The new technologies will not come from the ERP consolidators.

We are at a discontinuity between inside-out and outside-in technologies.  The new technologies will be outside-in. They will help us sense before responding.  They will help drive an intelligent response.

Lora’s statements are supported very strongly by the findings of the SCM World study, with very clear differentiation between the best-in-class SCM companies and those that received an average rating.  In the case of closing the gaps between planning and execution, there is a huge difference of 17%, and 28% to the laggards.  While not as dramatic, there is also a significant difference in the degree to which information from trading partners is included in SCM processes. 

How can you sense what is happening in your supply chain quickly and effectively if you do not get demand or supply signals from your trading partners?  Or as Lora states, “how can we effectively respond when we cannot sense?”  Sensing is only half of this statement, responding is the other part.  How can you have an effective  response without closed-loop integration between supply chain planning and execution?  As Nick LaHowchic states in an interview in SCDigest,

Companies need to respond much faster tactically. You can’t wait for a monthly S&OP meeting to make most of those tactical decisions any more.

Summary

These commentators and the results from the SCM World survey clearly indicate the importance and benefits of closing the gaps between planning and execution.  The business drivers behind this need start from customer expectations for reduced order-to-delivery lead times and competitive pressures to bring new products to market in ever shorter cycles. 

But the gap is wider than just between supply chain planning and execution.  It starts from the gap between financial plans and supply chain planning.  This is, of course, the primary gap between the C-suite and the supply chain function.  One talks in financial terms and the other talks on operational terms.  One talks effectiveness, the other talks efficiency.

Perhaps the answer is to have a single integrated planning and execution system, from business planning all the way to execution, including S&OP in between.  Only then can we bring these gaps together.  Any change in the business plan will be reflected immediately as changes of goals and objectives for operations.  Equally, changes in planning and execution will give the C-suite visibility in future performance.

What are your thoughts?  Do these gaps exist in your organization?  How effectively do you communicate with the C-suite?

There is a comedian here in the US, Jeff Foxworthy, who is famous for his “You might be a redneck” jokes.  I am copying his format  – I hope I do not get any trouble related to comedian patent regulations or something like that!

“You might be expediting too much…”

• IF, you are amassing major points in your Air Frieght carriers “frequent flyer program”…
• IF, you constantly get emails from your Land/Sea carriers saying “We miss you, please come back”…
• IF, your key supplier ran out of bright orange “hot order” stickers to place on travelers and had to place a rush, expedited purchase order for more stickers…
• IF, even though your “Material Expediters” canceled their gym memberships but are actually in the best shape ever…
• IF, you use half of your white board to prioritize which late parts need to be expedited by keeping score of angry phone calls from production…
• IF, you use the other half of your white board to track supplier promise dates for late/shortage parts and you have run out of space…
• IF, you have not logged into your company’s MRP system for weeks because none of the dates are accurate… You might be expediting too much.

OK, these are obviously starting to get worse, so I am going to stop. Any more to add?  Join in!

As part of the 2010 CSCO Summit, the free-to-attend virtual event taking place on June 15th and 16th, 2010, John and Angel will co-present the track entitled, “Creating the Next Generation Value Chain to Deliver Customer Value,” on June 15th, 2010 at 9:00 EST (14:00 GMT).

Attendees will learn about Cisco’s supply chain transformation from a cost-centre to a competitive advantage. In response to rapidly shifting business demands, Cisco has focused on integrating previously siloed back-to-front end operations into a single global operations group that covers the extended value network, from downstream suppliers through to upstream customers.  This session will provide critical insights on the lessons learned and the key focus areas to consider.

The CSCO Summit, a two-day event consisting of an agenda of 11 presentations, brings together an influential group of global supply chain, operations and procurement leaders to learn and share best practices around the critical factors driving strategic supply chain and operational agendas across multiple industry sectors. 

To register for this free event, please visit:
http://cscosummit.raptureworld.co.uk/register

Before the meeting we heard that the meeting was fully booked and that people were being turned away.  I am usually sceptical when I hear this, but I have to say all the sessions were packed with many people standing at the back of the hall.  The Top 25 dinner on Wednesday evening was well attended as was the barbecue on Thursday evening.  While we did not attend the Peer forums run during the day on Wednesday, I heard anecdotal evidence from attendees of a packed house.  While good for AMR, and the conference as a whole, I interpret the strong attendance numbers to mean that companies in North America are feeling a lot more bullish about the economy.  This is important given the theme of the conference, which was “The Economy of Abundance: Rebuilding the Infrastructure of the Global Supply Chain for Sustainable Growth”.  Rebuilding infrastructure is not cheap and is a long-term commitment.  One has to be fairly confident of the outcome before embarking on infrastructure investment.

As always the announcement of the AMR Research Supply Chain Top 25  is one of the main events. In announcing the list for 2010, Debra Hofman made the observation that

“Twenty years ago, a typical product company had supply chain reporting to manufacturing, with responsibility mainly for inbound materials management and outbound shipping. New data shows that supply chain reports to manufacturing in only 6 percent of companies surveyed, while 61 percent have the head of supply chain reporting directly to the CEO, general manager or president of the business.” 

For those of us who have toiled in the industry for years, this is good news.  I don’t mean this in a selfish manner, but rather that it is great to see that the value added by the supply chain function is being accepted and therefore the transformative capabilities of the supply chain function are being adopted.  The value add is from being able to operate more efficiently and therefore to reduce costs, while improving customer service.  The transformative capabilities are from being able to operate more effectively in an increasingly global market with a widely dispersed supply chain because of off-shoring and outsourcing.  But also more effectively in terms of using the existing infrastructure – whether currently inadequate (emerging economies) or crumbling (Western economies) – at a reduced environmental cost.

I compared the top 10 companies on the AMR list for 2010 using the free Kinaxis Benchmarking Service, and summarized the results below.  The AMR convention is to average the results over the past 3 years, which I have done too.  One observation I would like to make based on the table below is the constant interplay between efficiency and effectiveness brought out by the fact that the two companies with the highest  net profit, Cisco and RIM, have amongst the worst working capital ratios (WC Ratio), other than Apple (which is number 1 on AMR’s list).

The speaker list was carefully and well chosen.  I was struck by what seemed to be a conscious effort to get more speakers from outside North America.  The keynote address was given by T. Boone Pickens, chairman of BP Capital Management and founder of the Pickens Plan.  I had never heard Mr. Pickens speak in person before, and was thoroughly amazed at his command of the facts.  He spoke for over an hour without notes and without a script, constantly reeling off facts about the energy industry.  While not entirely aligned with Mr. Pickens politically, I find his plan to use natural gas compelling.  Some facts he stated which made me sit up and take notice are:

• Maximum oil production in the world is 85M barrels/day.
•       Demand in 2008 was projected at 87M barrels, until the economic crisis hit
•       Forecasts for Q4 in 2010 is 86M barrels.
• 70% of all the oil in the world is owned by state run oil companies
• 1 mcf of natural gas is equivalent to 7 gallons of diesel
•       1 mcf of natural gas costs $4.10
•       7 gallons of diesel cost $21
• A battery cannot move an 18 wheeler
• The US spends $1B/day on oil imports

While these facts are compelling reasons to adopt the Pickens Plan for the conversion of the heavy truck industry to natural gas, it is also a wake-up call to all supply chain practitioners about the future cost of fuel and its impact on the supply chain.  While switching to natural gas in the US makes sense from an economic perspective, most supply chains are now global and will be under increased strain from both cost and scarcity of fuel.  If we include sustainability and “green” issues, there is a lot of incentive to rethink our supply chain designs and to operate our existing supply chains both more efficiently and more effectively.

In keeping with the theme of the conference, the other speakers, namely Robert Blackburn (BASF), Didier Chenneveau (LGE), Brian Krzanich (Intel), and Richard Lechner (IBM) all emphasised sustainability in all its aspects including reducing the impact of application and by-products (including containers) of the main product.  But the overarching theme of all the speakers was the effective use of the supply chain to reduce the movement of goods to a minimum while satisfying customer demand in order to reduce the financial and environmental cost of the supply chain.

We had a much bigger presence than normal at this conference and it was well worth the cost and effort.  The quality of the speakers is excellent and AMR does an excellent job of identifying a topical theme.  As always the more detailed sessions run by AMR analysts were also of excellent quality.  There was a real buzz at the conference about S&OP.  Jane Barrett of AMR made the observation that many of the companies that were early adopters of S&OP have now started to use a different term to distinguish their more mature S&OP practices from standard practice. One can always tell when a topic is reaching critical mass because people start inventing new names for it in order to differentiate their application. 

I’d be really interested to hear from other people who attended the conference to compare and contrast observations/opinions.