Posts Tagged ‘Supply chain visibility’

Most manufacturing enterprises have a formal approach to planning and executing production.  However, it seems that at a practical level, there is some combination of planning and executing as well as expediting (working to recover to meet late or potentially late demand).

I think that most of us would agree that ideally, we would have a sound plan where there is accurate demand (forecast and/or actual), adequate resources and capacities are in place both in-house and at suppliers, and all the supply chain is on board and executing to the plan.  In reality, there is a lot of expediting that occurs, at least in my experience (the extent of which depends on the industry and the complexity of the products and the supply chain.)  A lot of manufacturing companies even have a formal position with a job title something like “Material Expediter” or “Production Expediter” (although the actual job descriptions can differ from what I am describing).

What I have found in working with some customers who do a lot of expediting, is a basic lack of maintaining data accurately in their formal ERP/MRP system.  A lot of the “planning” tends to occur off-line in Excel spreadsheets or other tools.  This may work in some isolated areas, but from an overall enterprise perspective, much of the supply chain does not have visibility into these off-line plans.  I correlate this to Project Management on a large project where there is no up to date project schedule that the entire project team can work to.   Team members work tasks that they are directed based on meetings, phone calls and other types of somewhat ad-hoc communication. 

This can be somewhat effective, but not having the formal MRP system reflecting the current plan disables the capability to orchestrate the entire supply chain and efficiently execute the plan.  This leads to a lot of expediting rather than planning and executing.  Why don’t we always keep the formal MRP system up to date?  There are lots of reasons, including:

1. too time consuming;
2. off-line tools are easier and more flexible; and
3. certain processes or functionality is not supported in the formal system.

An example of # 3 above, is provided in a blog post from a colleague of mine called Do YOU have enough Supply?   This describes a process to allocate limited supply to demands that recently, seems to becoming more prevalent in certain industries.  A process like this may not be supported in the formal MRP system, so it is likely done off-line.  Changing or enhancing the MRP system to support new functionality generally takes some significant time and money, and usually has to compete for priority with other fixes and enhancements needed.

I know that many of you will agree that this expediting approach is far from ideal, and also may say “not us, not me”.  But I also know from experience that this occurs and sometimes with some very practical reasons.  In situations like this, what can help solve the problem is a system with capabilities in a couple of key areas:

1. Detect and report data integrity issues in the MRP system for clean-up
2. Easily configurable to support additional planning functionality
3. Available for sharing and collaboration across the supply chain

I would like to hear any insights, experiences and suggestions you may have regarding this expediting versus planning situation.

There has been much written about Iceland’s Eyjafjallajökull volcano. It certainly has had a significant impact on the global supply chain. One would need a very good crystal ball to predict this unplanned event, but it certainly exposes the vulnerability of distributed networks.

Here’s the big question:  Will companies think differently after suffering the consequences of this natural disaster?  What will they do different?

I don’t think the answer is building more just in case inventory. In order to stay competitive supply chains have to be lean. (In fact, they are becoming even leaner with late stage postponement to satisfy increasing levels of customization on consumer goods.)

Here are some questions for consideration:

1. Can you proactively analyze and understand the risk of unplanned events?  This may be the upside or downside in demand or supply disruptions. This also includes the identification of sole sourced material.
2. Do you have the visibility and access to information in your supply network that you need? More and more companies are looking for a global view of all of their inventory with the need to rebalance as the demand and supply fluctuate
3. Do you know what to do when you have a problem that you just can’t solve?  When a volcano happens there is not much you can do about it. The question is are you making the best use of the supply that you have? How do you want to prioritize demand and allocate your supply? How quickly are you able to make these decisions?

While there may never be another volcano that disrupts the supply chain, there are daily disruptions that affect companies every day, and that taken in sum can have a material impact to the business. How do you deal with them?  Send in your stories!

I recently read a blog post titled “Beware Supply Chain Excel Users—YOU are DOOMED!!!!” by Khudsiya Quadri of TEC.  I completely agree with the author that there is a big risk to SCM Professionals who rely too heavily on Excel.  There are all the reasons listed in the article such as  lack of collaboration, visibility, control and no ability to perform “what-if” scenarios.  I would like to add some additional thoughts to this discussion.

A big limitation of Excel in my view is that it cannot mimic the analytics in the company’s source ERP system.  Why is this important?  If someone is using Excel to make business decisions without all the capabilities the ERP source system has, then they may not be making the right decisions.  How can you make planning decisions if your spreadsheet doesn’t take into consideration functionality like sourcing rules, constraints and order priorities?

A company’s supply chain map is very complex, typically there are internal manufacturing data sources, external manufacturing data sources, inventory site data, etc.  It is possible to get data from multiple sources into Excel, but the big challenge is that the data is not always the same from each source system, so many organizations may have multiple spreadsheets to perform the same function/analysis.  But can any of those spreadsheets be truly accurate if they don’t show a true picture of the whole supply chain? 

It is almost impossible to control the integrity of spreadsheet data and access to the spreadsheet.  With multiple people accessing the spreadsheet and no security, how can anyone have any confidence in the data?   In addition, most spreadsheets need to be reviewed by many people which typically requires pushing the spreadsheet around.  Without system standard security, data integrity could be an issue and auditing who made changes could be an issue.   How can there be a high level of confidence in the data and subsequent business decisions made?

I have known many supply chain companies who do make critical business decisions based off of spreadsheets.  For example, one company would use spreadsheets to analyze big order drop ins.  If they had a big order drop in they would use their spreadsheet(s) to determine the effect on their business and when they could commit to the customer to deliver the order.  This would typically require multiple spreadsheets getting data from multiple sources, tons of manipulation, trying to tie data together, and many different users from the organization looking at their piece, which would take several days and by then the data had changed and the end user would only have a 50% confidence level in the answer back to their customer.  This can be crippling if your products are very expensive like in the aerospace industry where the products are multi-million dollar and the customer is the government who may impose penalties if orders aren’t delivered when promised.

You need to:

• get all the supply chain data in one place for visibility (with frequent data refreshes),
• mimic the source system analytics,
• have all the system standard security functionality and
• output data in a familiar “Excel-like” format. 

True nirvana is: one source of the truth, multiple users having access at the same time, data integrity, “what-if” capability with the power and flexibility of “Excel-like” outputs.

By the ‘twenty-tens’ I’m referring to the decade that has just begun and for which a colloquial name has not yet been coined. I feel that it’s going to be an interesting decade for enterprise software because we are going to witness the fallout from the failure of big ERP vendors to make software that addresses the modern-day challenges of this decade and beyond. The last two decades are sunk. Now, it’s time to move forward.

In my first post to this blog, I want to point out three table stake capabilities that ERP vendors have failed to provide. I’ve been with Kinaxis for four weeks and have been immersing myself in the world of supply chain and S&OP trying to figure out what really drives organizations to improve their supply chain. In talking to my colleagues, which include some of the world’s most knowledgeable supply chain experts who work side by side with some of the world’s best run manufacturing companies, I’ve learned that customer service is at the top of the list.

In these volatile, post-recessionary times, manufacturers need to know when a customer order is at risk, and then they need to figure out fast how to course correct. Unfortunately the solutions in place – at one extreme, error prone manual spreadsheets, or at the other extreme, multi-million dollar ERP modules – can’t offer the following capabilities:

1. SPEED.  When a customer calls you with a potential order, how long does it take you to get back to them with a promise date?  Increasingly, customers will want feedback in a matter of minutes – not hours or days. If you’re saying to yourself “That’s impossible.” Well, it is possible.

2. RESPONSIBILITY ASSIGNMENT.   When an unexpected event puts orders at risk, do you know who to call? How many steps are required to understand and rectify the situation? Being responsive to keep a customer order ship date on time requires an immediate response whether that be to an internal resource or external supplier.

3. ONE VIEW. As you rely more heavily on outsourced manufacturing and suppliers, it becomes increasingly difficult to see and coordinate your supply chain from beginning to end. A ‘twenty-ten’ supply chain solution must be able to provide visibility across sites and suppliers.

The last capability might not stand up to the argument that it cannot be found elsewhere because given enough time and money, anything is possible. However, most manufacturers don’t have enough time and money to continue down the ERP path. Business leaders have realized that now it’s time for something different. It’s going to be an interesting decade.

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There was an excellent article in IndustryWeek based on a conversation with Jim Lawton from Dun and Bradstreet Corp which talks about the importance of knowing who your suppliers are and what their current state of health is.

The article raises some really good points about the knowledge we should have about our business partners.  From the article;  

“One of the lessons learned … was that we often do a very good job of looking at the creditworthiness of our customers and their ability to pay us, but we don’t do as good a job looking at the financial wherewithal of our suppliers,”

This is ironic when you think about it.  If a customer fails, we have some options to reclaim some of our lost money, however, if a supplier fails, the impact could be far greater!  Yet we will check the customers health before we accept a sale, but we often don’t check our suppliers health prior to sourcing from them.

Also discussed was how risk factors have changed as companies try to reduce the cost of their supply chains.  In our focus on reducing costs, we’ve reduced our supplier base, we’ve single sourced on suppliers that have the lowest costs, and then pressured these suppliers to reduce costs even more.    Then we are surprised when these suppliers don’t make it through a recession.  The article says it well;

“Companies, by and large, pay too much attention to the costs and not enough attention to the risks, and so when the economic downturn did hit, very few companies had invested in and developed a robust risk management infrastructure that would have given them an early warning.”

We’ve talked about this issue in a previous blog post;  Newest Supply Chain Risk: Zombies.  Especially now that demand has started to turn around, many suppliers have cut so deep and been hurt so bad by the recession that they will be unable to respond when your demand hits them.

The difficulty of assessing supplier risk is when companies have grown through acquisitions and as such, have large number of disparate ERP systems.  Often these companies have no centralized view of who their suppliers are and what goods those suppliers provide.  The article provides an extreme example, but even when dealing with much fewer ERP systems, there is still a significant issue to overcome;

“There’s a particular company I’m thinking of that has 72 different ERP systems,” Lawton says. ” … They don’t have a single view of all of those companies that ties together all of the interrelationships in terms of this company is partially owned by this company, and so risk in one is potentially setting up risk in the other.”

While the article does a great job of detailing the importance of understanding the financial health of your supply base, I’d like to expand on a few points;

• First, remember that your supplier is only as good as their suppliers.  Your supplier could be very healthy, but your supplier’s supplier could be in trouble.  If one of those supplier fails, you are in just as much trouble as if your supplier failed. 
• Next, identifying a supplier that is at risk is only half the battle.  Understanding the impact of that supplier failing, and knowing what alternatives you have should that supplier fail is key to your establishing a mitigation strategy. 
• Finally, the article raises a good point that focusing on only your top suppliers, while often necessary if you don’t have the tools to manage a larger set, is not protecting you from significant risk.  That 20th ranked supplier could still cause significant pain were they to fail.   That being said, companies need to start somewhere.  If you haven’t started a supplier evaluation project yet, you need to establish a rational for where to start.  Looking at those suppliers that have the largest impact to sales is probably a reasonable place to start.

I was reading the article: “2010-Risk or Opportunity?” on SupplyChainBrain.com and it got me thinking about 2010 and the author, Mark Woodward’s comments.

The first topic the author discusses is “Multi-Tier Functionality”.  As more and more manufacturing operations are outsourced it is difficult for a company to have any control over their supply chain because they lack data.  I agree with the author that this becomes an imperative in 2010.  The economy is showing signs of improving however, all of the companies I speak with say the only sure thing is volatility.  No one really knows how the business will be so they will need to be able to react and make decisions very quickly up and down the supply chain.  This requires not only visibility into the supply chain data from suppliers, but the ability to simulate changes in demand and supply to determine how best to make business decisions based on fluctuations in a company’s business.  Ideally, the customer would have the ability to explode the full BOM to be able to make decisions at any level.

As the author states there needs to be a focus on relationship building.  The article talks about the relationships between trading partners and brand owners becoming true partners.  I absolutely agree. Having visibility into data and the brand owner being able to make better business decisions should help the brand owner make better business decisions about what they need from the trading partner and hopefully improve the trading partner’s business as well.  The customers I work with who do this well are able to create many different types of scenarios the simulate changes in demand which allow both parties to keep the lowest amount of inventory and lower their costs.

In addition, I think the brand owners need to focus on the relationships with their customers (as the author states).  Manufacturing companies I talk to are very worried about any significant change in their relationship with their biggest customers.  Typically, the biggest customers not only comprise a large portion of a company’s revenue, they also can be the engine for a company to acquire new customers.  If a top company in a field is using someone, then smaller companies in the same field may want to use that company as well.  So, the ability to collaborate with your biggest customers through a portal, VMI or just sharing data can be critical.  These relationships are also important in the sales and operations planning function for a company.  The best way to have true visibility to demand is a good customer relationship.  I do believe in this volatile market that sales and operations planning for a company will be key to their success in 2010 and good relationships and collaboration will be key.

All in all, 2010 is going to be an unpredictable year for manufacturers and the more visibility companies have in their supply chains, the more they can simulate changes in demand and supply, the better relationships they keep, the better off they will perform next year.  It will be interesting a year from now to see if the best performing manufacturing companies have implemented some of these capabilities. 

Happy New Year!

Many supply chains have more links in them than is initially evident.  The time it takes for information to flow up and down the supply chain can be directly proportional to the number of these links.  Moreover, some of these links in the supply chain can distort, as well as delay the information that needs to flow.  Most importantly, the right information needs to flow through the supply chain.  The speeding up of incorrect information or the wrong plan will only result in more churn, which can result in decreased customer service as well as increased inventory.

What is needed is the capability to simulate changes, determine the best response to these changes, and then communicate the response rapidly across the supply chain.

Consider the following diagram:

Based on the diagram above, there are at least two dimensions of links in a supply chain:  external and internal.  The external dimension is the links between one entity and another, such as a manufacturer and a supplier.  The internal dimension is reflected in the Bill of Material structure within an entity.

Each of these links can delay or distort the information flow along the supply chain.  Related to delays, a signal for a supply or demand change needs to likely flow via an MRP execution, normally only run nightly at best,  then there are potentially orders in place where the MRP execution creates exception messages that need to be acted upon by a planner or buyer before the change signal will flow.  In most cases, planners and buyers receive many more MRP exception messages that can be acted on within a day.  Obviously, since there can be at least several days of delay at each link, and considering these internal dimension links, the overall delay will sum up to a considerable amount of time.

Related to distortion, order policies to bucket orders into lot sizes or minimum buy quantities can magnify the change signal as it flows up the supply chain resulting in the traditional “bull whip” effect.  Given this, the wrong change signals can be continuously flowing through the supply chain.

Many manufacturers have attempted to reduce the delays and distortions along the supply chain by implementing automated rescheduling of placed orders, EDI, schedule sharing, supplier portals, small lot sizes, pull systems and the like.  All of these efforts help, but a more comprehensive solution is required to optimize the flow of the right information rapidly through the supply chain.

The comprehensive solution needs to provide the following capabilities:

• The ability to simulate demand and supply changes within multiple scenarios that can be evaluated against each other for the optimal response plan
• Provide the option of auto rescheduling orders and removing or changing lot sizes
• Include visibility into key supplier data and include in the simulation
• Evaluate the impact throughout the supply chain and communicate and collaborate the needed changes quickly

How many links are in your supply chain?  Have you considered this internal dimension of links?

I was talking to a Contract Manufacturing company the other day and discovered an interesting  predicament.

A hot-button issue for this Contract Manufacturer (and others I’ve talked to as well)  is the need to get better information from the Brand Owner about how the product is selling to the end customer.  The Contract Manufacturer’s concern is that the forecast changes from the Brand Owner often come too late to prevent procurement of components needed to satisfy the current forecast. If the CM had better visibility to demand, and more importantly to the rate of consumption, they could provide an essential service to the Brand Owner by warning them about unrealistic forecasts BEFORE the purchase orders go out..  Additionally, the CM would like to be able to challenge new forecasts as well…if only they had the data.  This could save the Brand Owner millions of dollars in inventory liability!  Unfortunately, the Brand Owners often don’t want to give this information to the Contract Manufacturers. 

Amazingly, when talking to Brand Owners, I’ve often heard them say that if only they had access to the contract manufacturer’s data,  they could evaluate changes to the supply plan and make sure they are realistic before we send it to the Contract Manufacturer. Not only that , but we could get visibility to shortages to the Contract Manufacturers and we could help apply pressure to component suppliers   Unfortunately, the Contract Manufacturers don’t want to provide detailed manufacturing information to the brand owners as they fear that the Brand Owner would want to interfere with their planning processes.

So both Brand Owners and Contract Manufacturers feel that they need more information from the other party to better manage the relationship, but yet neither are willing (or are able to) provide this information to the other party.

Hmmm.

So what is the answer?  I have my thoughts, but I’d be really interested in what you, the reader, has to say.  I suspect that many of our readers either work for a brand owner of some sort or a contract manufacturer of some sort.  What level of visibility do you provide to your business partners?  What information do you hold back? Why?  Do you have clearly defined roles about what the Brand Owner does and what the Contract Manufacturer does?

Comment back and let me know what you think.

As an integration consultant, I have worked with a variety of manufacturers implementing supply chain planning and response management applications.  What I have noticed is that at many of the manufacturers, not all, there are many past due purchase order (PO) schedules in their ERP system. 

Obviously, when a PO schedule is past due, it cannot be determined when that scheduled supply will be available to support production.  In many cases, revised delivery commitments from suppliers are maintained outside of the formal ERP system, such as Excel worksheets or supplier portals.  A variety of reasons exist for not updating these past due PO schedules in the ERP system:  too much time required for updating; suppliers need to be measured against the original schedules for metrics, to name a few.  The paradox is that the cost and potential lost revenue of not being able to effectively plan or respond to demand and supply changes likely greatly exceeds the cost of managing the late PO schedules in the formal ERP system.  However, given the fact that these past due PO schedules exist leads me to believe that implementing a process, or just the simple discipline, to update these to the actual expected delivery dates is just too difficult. 

It seems that there are at least several options to fix the problem. 

One option is to build an interface from the supplier portal if it exists, or if one does not already exist, implement a supplier portal with an interface to the formal ERP system to get the latest supplier delivery commitments.  This option could be very costly and also take some considerable time to implement.  Another option is to simply start maintaining the late PO schedules in the formal ERP system.  This could be accomplished by instilling the discipline and the process within the organization to do this.  Part of the process would have to include a reporting and tracking mechanism to alert buyers of past due PO schedules and also track the progress at working them down.  Although there may be barriers to updating the formal PO schedules, this option could leverage a response management system that can send automated alerts to buyers or planners and track the progress at reducing past due PO schedules. 

To me, the preferred option is to leverage a response management or supply chain management system and import the supplier commitments from wherever they exist, whether it be Excel worksheets, a supplier portal or some other application outside of the formal ERP system.  This provides a capability to evaluate the current planning with realistic supplier delivery dates and to simulate changes to determine the best response to change.  This last option also minimizes the manual effort of updating PO schedules.

Do you have past due PO schedules in your ERP system?  If so, is there a compelling reason not to fix them?

For an interesting read, check out:  http://brainstormtech.blogs.fortune.cnn.com/2009/10/23/big-software-has-duped-us-for-decades-part-i/

I have the privilege of speaking with multiple companies every day….and they are all struggling, particularly with their supply chain.  They aren’t meeting their delivery commitments, their inventory is too high or they just don’t have enough visibility in their supply chain. There is an expectation out there that ERP systems will do everything for everyone in an organization and it is just not true.  Yes, it is certainly a good financial transaction tool and some companies find their ERP systems to be very successful. However you then find out that they have spent millions of dollars to make that happen.

I understand why a CIO of a company would want to have all of their business solutions on one ERP platform, but at what cost and compromise?

What do the users need in their day to day operations? They need better tools designed for users and not transactions. Organizations are continually being challenged to do more with less. The common theme in the business is being overworked, constant stress, change and disruption.

People in Demand Management, Sales and Operations Planning, Customer Fulfillment, and Planning and Scheduling have a right to be heard. They don’t have the time to source out better solutions that will improve their efficiencies and performance. Do they know that there are solutions that can vertically integrate their supply chain, providing them visibility to other aspects of their operation in other parts of the world or with their partners? Do they know that they can test changing a demand that will instantly regenerate MRP and tell them where their gating material and capacity constraints are? Do they know that they can create their own reports rather than relying on a queue with the IT department?

It is up to the management of an organization to ensure that people are properly empowered to do their jobs in the most efficient manner possible. There are ways to solve these problems.   Don’t wait until it is too late to address these issues. Look for disruptive SaaS technology…to augment your ERP….without getting ‘duped’ as Roger Burkhardt, the author of the article so eloquently puts it.

What is your experience?