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2009

I came across a very interesting IndustryWeek article entitled: " Building A Better Supply Chain" where experts shared their thoughts about what criteria manufacturers should focus on to improve their supply chain capabilities.

 

The University of Tennessee’s J. Paul Dittmann says successful supply chains demonstrate proficiency in these five pillars of excellence:

  • Talent
  • Technology
  • Internal collaboration
  • External collaboration
  • Change management

 

I couldn't agree more...what about you?



Originally posted by doppenheim at http://blog.kinaxis.com/2009/07/the-five-pillars-of-supply-chain-excellence/

The white paper, Making the Case for Lean Process Lead-Times, makes a compelling case: Improvements in production processes are often insufficient to solve customer delivery problems.

 

In addition to production processes, you also need to look at your order management processes. If you recognize that order management, particularly managing changes to orders, is a key process to your business, then you can address that process with Lean. What does your customer value? If you don't provide that value, you are not doing your job! Anything you do that is not directly providing that value is waste.

 

Most likely, your customer is looking for a positive response (Yes, we can accept your request), that is provided immediately, and is ultimately met. If you must make a negative or delayed response, your customer is going to want to understand why.

 

How can you streamline your processes to be able to provide that answer? As the paper suggests, the first step is to recognize that changes are more the rule than the exception. Therefore, design a process to deal with change. What might be some of the elements of such a process?

  • Most likely, you will need to improve your visibility into your supply chain. You need to know what material is available that could be committed to a changed order.
  • If the change is a delay, cancel, decrease, or change from one item to another, you will also need to understand the potential for excess material and similar inventory liability questions.
  • In addition to visibility, you want to make your entire supply chain more responsive to changes. That is, you would like your suppliers to think of "change" as a routine process for their operations. Ideally, you might want to collaborate with your suppliers and with your customer in order to effect the requested change as painlessly as possible.

 

Then, there is the human factor. You need to instil a drive in your people to respond to change, that change is not an annoyance but a critical element of successful customer relationships.



Originally posted by dklett at http://blog.kinaxis.com/2009/07/improvements-in-production-processes-are-often-insufficient-to-solve-customer-delivery-problems/

Kinaxis has just published its latest white paper, One-to-Many : Establishing a common platform to address multiple supply chain applications.

 

Here is the abstract:

 

What is needed in today's dispersed and loosely coupled supply chainsis more collaboration, and less control; more coordination, and less optimization. Companies must have the ability to enable their front-line people to use their judgment to make fact based decisions which address the surprise and compromise inherent in today's global and multi-tier supply chains. At the heart of delivering these capabilities is the technical architecture of the supply chain solutions.

 

This paper describes the integrated set of capabilities that is required to satisfy the business needs of the 21st century supply chain.

 

Let us know if you agree…



Originally posted by tmiles at http://blog.kinaxis.com/2009/07/more-collaboration-and-less-control-more-coordination-and-less-optimization/

I came across a post by Kevin O'Marah of AMR titled " Engine of Recovery: the Third World". The central theme of Kevin's post is how can companies in the western world leverage their IP in the developing world even as they adopt a "knowledge economy" in the western world. An interesting conundrum, especially in light of the massive outsourcing we have seen over the past 10-20 years.

 

What caught my eye though was the title of his blog. I agree with the opinion expressed by Kevin that the developing world, particularly the so-called BRIC countries, will be the engines of recovery. This is a topic I wrote about in a previous posting titled " Recession or reset?".

 

Kevin's blog addresses some of the strategic issues with which companies in the western world will need to grapple, a key phrase being that "The conundrum goes like this: we all know higher value work is based on intellectual value add and we all hope there will be profits in building IP empires. Unfortunately, today’s pricing and IP protection models are so weak that pure IP players like media and entertainment are getting killed." I think that companies should focus on products that people can see and touch.

 

Kevin brings up the concept of "lather, rinse, repeat" to describe how western companies can use existing IP to address the market needs in the developing countries. This is the strategy that all companies need to adopt, particularly in consumer electronics. The environmental movements catch phrase of “reduce, reuse, recycle” can also be repurposed to capture the concept of what companies in the western world need to do in terms of products and IP in order to capture markets in the developing world. I think Nokia has been leading the way with the manner in which it is transforming banking transactions in Africa by using cell phone technology that dates from the "early" days of wireless communication.

 

I am also fascinated in the rise of companies such as Acer, Huawei, and Lenovo. I came across Wockhardt, an Indian Pharma company, the other day that has revenues of USD833M. I am embarrassed to say I had not heard of them before last week. Combining these companies with Mittal, Tata, Vale, and many other companies I do not know, clearly indicates that a buck can be made in the BRIC countries. The challenge for western companies is the work out the strategies and operational structures required to participate in these new economies. Personally I do not think a pure IP play is the way to go. All of these companies still make stuff.



Originally posted by tmiles at http://blog.kinaxis.com/2009/07/is-a-pure-ip-play-the-correct-strategy-for-the-new-world/

I came across this article in cio.com. It outlines Wal-Mart's plans to implement a "major sustainability initiative" across its supply base. Their goal is to" co-develop a worldwide sustainable product index that will establish a “single source of data” to allow Wal-Mart and (eventually) consumers to evaluate the sustainability of Wal-Mart’s suppliers’ products." This initiative will be broken into three major phases;

  1. The 100 000 strong Wal-Mart supply base will need to answer a survey on practices in energy and climate, material efficiency, natural resources and people and community
  2. Wal-Mart will partner with universities, suppliers, retailers and government agencies to "develop a global database of information on the lifecycle of products — from raw materials to disposal"
  3. The company will then translate the information it's gathered into a simple rating for consumers about the sustainability of products on Wal-Mart's shelves.

 

The upshot of this is that Wal-Mart believes that its customers will want to be able to choose the more sustainable option when shopping for goods. Like price, quality and reputation, sustainability is becoming a buying consideration.

 

Wal-Mart has been implementing environmental initiatives internally as well. I've seen an example of some of Wal-Mart's environmental efforts in my local store. We've recently been updated to a Wal-Mart Supercenter, complete with grocery store. The freezer aisles only light up the freezer displays when somebody walks by. It's a bit unnerving, but I'm sure over the course of a day it saves significant energy. Other examples are recycling bins with every garbage bin, sales of re-usable bags and low water flow faucets in the washrooms. If you go onto the Wal-Mart (Canada) website, you'll find a report on their environmental and corporate responsibility efforts.

 

The cynical amongst us, might look at Wal-Mart's efforts and put it down to a marketing gimmick. It may be, but I don't think so. In fact, it doesn't matter what their motivation is. The reality is that Wal-Mart's changes both inside their company and through the new rating system their rolling out, are an indicator of a change that is going to impact all of us. Customers, our governments, and our communities are demanding that we reduce our impact on the environment. Companies are going to need to look at their practices, processes and designs in order to reduce the environmental impact of your operations. The interesting thing is, reducing environmental impact often is simply a matter of reducing waste. The magic of this is that in reducing waste and making the company more sustainable, we actually end up reducing costs.

 

If Wal-Mart's initiatives are successful, you can imagine that other retailers will be stepping up their efforts to match Wal-Mart's. The impact of this environmental focus won't stop with the brand owners. Suppliers and contract manufacturers to those brand owners will be asked to reduce their environmental footprint. Given that this is coming, companies really have two choices. 1) Wait until one of your customers forces the issue and try to catch up or 2) Be a leader and start looking now at your processes to see where waste and poor environmental practices can be eliminated. Those companies that are environmental leaders will have the competitive advantage in the future.

 

What are your plans to reduce your company's environmental impact? What tools do you use to measure and improve your sustainability practices? Comment back and let us know.



Originally posted by jwesterveld at http://blog.kinaxis.com/2009/07/demand-for-green-is-comingare-you-ready/

In a white paper titled " Making the case for Lean Process Lead-times", David Oppenheim explores an often unexploited source of lead-time improvement; information processing.

 

Let's take a look at two companies that manufacture the same item. One company produces excellent quality for a reasonable cost and can typically deliver in 15 days. The other company has similar pricing, the same level of quality but can deliver goods (always on time) in 8 days. If you were in the market for the item these companies produce, which company would you rather deal with? It doesn't take a supply chain guru to say that you would rather buy from the company that can deliver itin 8 days.

 

Now let's turn it around. Let's say you could be the company that delivers in 8 days or you could be the company that delivers in 15 days. Which company would you rather be? This might be more complex because I haven't talked about profit margin, market share, and other factors. But I think I would want to be the company that can deliver in 8 days. Why? Because that company has a competitive advantage…and it's not just lead-time. When you can reduce lead-time, some very interesting (and good) things start to happen to your supply chain;

 

  1. To achieve this level of lead-time reduction, you've needed to do some serious waste elimination. This typically means your operations are more efficient.
  2. When you reduce lead-time, you need less safety stock. Safety stock is used to cover demand and supply variation during the lead-time of the part. If your lead-time were 0 (you could snap your fingers like the Great Gazoo and make inventory appear), you would need no safety stock because you could handle any variation in supply or demand.
  3. With less inventory, you need less space to store it, thus reducing capital costs.
  4. When you reduce lead-time, you can react faster to changes in demand signals.
  5. With reduced lead-time you can promise delivery to your customers with confidence.

 

As the white paper points out, companies typically focus their lead-time improvement efforts on tackling internal manufacturing lead-times or working with suppliers to improve their lead-times. This is valuable and companies should continue to challenge waste that leads to longer lead-times wherever it occurs. However, the white paper explores another key opportunity for improving lead-time. The administrative process. The time it takes from when a customer originally places the order to when work begins. This lead-time includes many activities; order configuration, order entry, scheduling, detailed planning, sourcing, shortage and constraint resolution and finally kitting. In many cases - especially when manufacturing lead-times have already been reduced - the administrative activities take more time than manufacturing the goods! This is an area of opportunity for many companies that is often overlooked and can yield huge benefits if addressed.

 

Originally posted by jwesterveld at http://blog.kinaxis.com/2009/07/where-can-you-get-the-best-bang-for-your-buck-when-looking-to-improve-lead-times/

I came across a very interesting response to my ' Constrained planning vs. finite capacity scheduling: which way to go?' article, which brought up a new angle to view constrained resource and material planning from. The response was talking about planning in the biotech industry as compared to the aerospace industry, commenting on how different the two were, and the need for a good planning tool that could accommodate the unique needs of the biotech and pharmaceutical industry.

 

Having worked with customers in both the aerospace and biotech industries, I can appreciate the significant differences between the two when it comes to constrained planning. While the needs of the aerospace and biotech industries may differ due to their very different products and production methods, several things they also share in common are:

  1. They are both heavily regulated and validated industries
  2. The need to holistically plan over the entire supply chain, across enterprise boundaries
  3. The need to model constrained resources and material without overly complex setup and maintenance
  4. The need to be able to simulate complex supply chain systems for what if analysis to ensure the best production plan is produced
  5. The need to be able to rapidly react to changes in supply or demand in order to quickly readjust the plan to meet real world conditions
  6. The ability to get results in real time for complex product structures and supply chain networks

 

Biologics differ significantly from aerospace in several regards:

  1. Biologics often tend to be supply driven (due the limitations of batch production of the drug substance), whereas aerospace is demand driven
  2. Biotech will have an inverted product portfolio (few raw components, many finished goods or presentations), whereas the opposite is true in aerospace (few FG's, many raw materials and sub-assemblies)
  3. Biologic planning is centered around expiry, whereas aerospace planning is centered around model/unit effectivity or serialization at the lower tiers.

 

These differences in biotech introduce unique constraints on planning due to the expiry factor, as supplies will become unavailable over a planning horizon once they expire, usually at a significant cost to the company. In order to mitigate this risk, any planning tools hoping to meet the requirements of the biotech industry must support expiry planning. Most commercial ERP systems support expiry only from a transactional point of view (tracking the expiry of produced lots), whereas what is really needed is the ability to PLAN with expiry. This raises the question, Should I use a tool created specifically for biotech, or can I use a broader based tool that could support both aerospace and biotech planning? The advantage of the former is it would contain all the necessary functionality to meet biotech needs, but the disadvantages of vertical specific planning tools outweigh the advantages.

 

These include :

  • The smaller target market leads to lower sales and revenue volumes, thereby making the company supporting the tool more financially vulnerable
  • The concentration of resources in one vertical means opportunities to leverage cross industry knowledge is lost (As mentioned above, there are a lot of commonalities in supply chain planning across radically different industries). This includes community knowledge and consulting services as well.
  • The requirements needed to meet multiple industry verticals lead to the development of a more robust and feature rich tool, as many different users in many different industries ensure full utilization of all aspects of the tool

 

That being said, we next need to look at what functionality is required to meet biotech needs and aerospace. The tool should be able to allow rapid changes to the supply and demand picture in simulation, so the planning team can react quickly to changes in the supply chain picture. The tool should be able to get data from multiple ERP, databases, spreadsheets, and other less structured sources, and bring it together in a holistic view of the supply chain. Since many industries now sub contract or outsource production and materials, the tool must be able to cross the enterprise boundary, so a complete picture of the supply chain can be presented.

 

Current best practices dictate that a team approach to problem solving results in better results and faster turnaround, so the tool must be able to support collaboration between users over a large geographical area. Lastly, the tool must make it easy for the users to manipulate and change many data points in real time, create simulation scenario's, and report on their findings in order to give relevant feedback to the organization.

 

Now that we have examined the general capabilities required of the planning tool, let's look at specific requirements as it relates to biotech. As stated before, expiry plays a large part in the planning and supply chain process of biologic products. Once a product (raw material, intermediate, or finished product) reaches its expiry limit, several factors come into play. For products with a soft expiry date (expiry can be extended by regulation or by re-sterilizing in the case of med devices), some action is still required, even if it is just re-labelling. In the case of hard expiry (product expiry cannot be extended by regulation), the product must be scrapped, disposed of, and written off the books. This can involve significant expense in disposal and scrap costs. There may be steps in the manufacturing process where expiry can be reset (fill formulation, etc.), so it becomes important to have added visibility at this stage. As well, finished goods will most likely have a stop sell date on them as well (the time offset before expiry that a product can no longer be shipped to a customer), as customers do not want to be stuck holding expired product in their inventory. This can vary by market and country, allowing the product to be used in one market but not another. When planning these types of products, the goal will be to minimize the amount of product that is not used and not sent to market. This also requires that sufficient safety stock is carried to allow proper coverage of the variations in supply and demand, as people could be depending on the product for their very lives and well being.

 

All of these factors make inventory turns reduction in biotech that much more difficult to accomplish, as the results of a misstep can have devastating consequences. In order to manage this difficult task, a planning tool capable of giving a clear picture of expiry, supply, and demand across the entire supply chain is a must. The ability to rapidly respond to changes in the overall business environment will help ensure that the dual goals of reduced inventory and adequate supply to meet demand can be met effectively by the planning organization with the optimal plan that accommodates the current environment.



Originally posted by mbuckley at http://blog.kinaxis.com/2009/07/the-expiry-factor-introduces-unique-constraints-on-planning/
Kinaxis

The customer is always #1

Posted by Kinaxis Jul 22, 2009

For many years I have worked in the high tech industry. Recently my experiences have been in the pharmaceutical industry and I have discovered an interesting insight. There is no question that employees in a pharmaceutical company know why they are there. It is all about the customer. The customers are patients and often the pharmaceutical companies are producing drugs that are saving people's lives. Employees certainly have a sense of purpose in their jobs and there is no doubt that the customer is #1. It is intrinsic. Everyone from the person making the bulk formula to the shipping clerk to the CEO understand what it means not to deliver on time.

 

In other organizations the customer is not always #1 or at least certain parts of the organization are detached from the customer. Should that be the case? I don't think so. Understanding the customer is just as important in high tech or aerospace or consumer packaged goods. It is more difficult to create a culture of 'customer is always #1' in some organizations. However everyone gains a greater sense of purpose in their jobs if the company operates this way. How many buyers are expediting or cancelling parts orders and don't know who they are affecting?

 

I am not suggesting that other metrics, like revenue or profit are ignored but customer value, customer satisfaction, and customer responsiveness are differentiators for companies. Is this difficult to measure? Certainly. Your CFO cannot objectively measure customer satisfaction as he or she can measure inventory turns or revenue. One has to consider the opportunity for increased market share and separating your company from your competition.

 

An excellentpost by Colleen Crum that spans a number of topics touches on poor customer service inevitably being the result of poor decisions and poorly designed processes that lack integration.
'Advances in communicating information across a supply chain aid in better decision making and collaboration'

 

This confirms that there are a number of opportunities to improve your focus on the customer.

 

a)Continuously communicate the value of the customer to all employees
b)Identify key objectives linked to customer value for all employees
c)Ensure that processes are integrated such that individual contributors at all levels understand their impact on the customer
d)Ensure that the appropriate tools are in place that identify the customer impact of your actions. This may be the buyer expediting a part or a production scheduler adjusting a production plan.

 

The end result of having the appropriate people, processes and tools is a leaner, more efficient workforce rewarded by providing customer value which results in positive impact to other key metrics such as revenue, margin and shareholder value.



Originally posted by cmcintosh at http://blog.kinaxis.com/2009/07/the-customer-is-always-1/
Kinaxis

Even Toyota is not immune

Posted by Kinaxis Jul 21, 2009

Forbes magazine recently published an article titled "What's wrong with Toyota?" where the author describes that critics are wringing their hands that capacity was built too fast to capture the truck market in the US.

 

 

 

The article describes how even Toyota is not immune to the troubles facing the automotive industry and that, in spite of the short term impact this economy is having on Auto/Truck sales, critical questions are being raised. Should Toyota continue its aggressive pursuit of market share in the US truck market, or retrench and go back to basics with smaller cars?

 

 

 

Could Toyota, known for its long sightedness in a near sighted marketplace, have anticipated this recent economic downturn, which put a halt on consumer spending from electronics to automobiles? One could argue that if Toyota, with its Toyota Production System (TPS) which is known as the leanest and best manufacturing system in the world, if they cannot adequately detect and respond to sudden changes in the economic climate, what hope is there for any of us in manufacturing?

 

 

 

There are some clues in the TPS that tell us why Toyota can and will respond to these market changes and will continue to grow and dominate the automotive market. It has to do with the embedded culture of the Toyota Way. The first two principles of the Toyota Way :

 

  • Base your management decisions on a long term philosophy, even at the expense of short term goals.
  • The Right Process Will Produce the Right Results: Create a continuous process flow to bring problems to the surface.

 

 

 

One of the key elements of the TPS is Jidoka. Jidoka is the ability for anyone involved in the manufacturing process to see what's going on and if necessary, stop the production line, bringing problems to the surface. Basic empowerment at all levels to ensure that errors that can cause defects (in materials, equipment, process) are monitored and detected right away in order to ensure they get passed on to the next operation.

 

 

 

In order for all employees to see what's going on with the process, it seems like the traditional tools of management need to be shared with a larger audience. What manufacturing process wouldn't benefit from having more eyes on it?

 

 

 

Not even Toyota has a crystal ball and can predict the future. But they do understand that by monitoring the critical process inputs and outputs, performed with the right tools in place, and coupled with the Jidoka mindset, the organization can learn, respond and re-engage.

 

 

 

In summary, Toyota can and will make mistakes like the rest of us, but the key differentiator is they have the tools to learn faster, and they take advantage of institutional knowledge, and empower all employees to think from a management and customer's perspective. This strategic advantage will ensure Toyota remains in leadership of any market it enters.

 

 

 

The good news is that these principles and visibility tools to see what's going on in the process are available for all manufacturers to leverage.

 

 

Originally posted by doppenheim at http://blog.kinaxis.com/2009/07/even-toyota-is-not-immune/

Kinaxis

What constitutes agility?

Posted by Kinaxis Jul 17, 2009

I came across this great report by Accenture: High Performance through Supply Chain Planning: Accenture Research and Insights into Supply Chain Planning Mastery

 

I think their findings are right on the mark - I've included them below:

 

Report Conclusions:

  • Our first conclusion is that planning must not be relegated to a department; instead it must be a widely embedded capability that extends across business functions. To adopt this philosophy, companies must shift the way they use data across the supply chain and the enterprise, replace obsolete processes, make key decisions much more frequently, strike much closer relationships with suppliers, customers and other "partners" to share critical data in real time, and nurture the supply chain planning professionals so they can accomplish all these goals. Such actions will be a major challenge to companies that view improvements to planning as being largely about upgrading their forecasting capabilities. The companies that have excelled in planning know it requires far more than that to be successful.
  • Our second conclusion is that analyzing and managing in a world of increasing volatility depends more on the ability to adapt than to generate long-range forecasts and supply plans. Companies that see improving forecasting and planning capabilities as the route to improved agility will be able to manage a world of increasing supply chain volatility. While forecasting is critical to planning, it is still just a scientific process to predict future demand based on historical performance. Many supply chain disruptions cannot be predicted. The increasing volatility of business now requires companies to possess highly flexible operating models and processes—ones that allow them to adapt rapidly to unpredictable changes. Superior supply chain performance today demands top-notch forecasting and planning as well as highly adaptable sourcing, manufacturing, transportation and other supply chain operations.
  • Finally, to deal with a greater number of contingencies in the future, supply chain planning must happen faster and more frequently and be more tightly integrated with pricing, logistics and other functional disciplines — both internally and externally (with suppliers, customers, etc.). This is the essence of an effective sales and operations planning process. All key constituencies in a company (sales, finance, marketing, logistics, etc.) in each channel segment and/or product line must play a role in this process. They all need the right information and the ability to make critical decisions based on sharply defined decision criteria. Furthermore, they must make rapid decisions continually and through an entire product life cycle. In addition to being integrated internally, the sales and operations planning (S&OP) process must be synchronized with a company's key suppliers, customers and other business partners. Collaborative planning both internally and externally must be the rule rather than the exception.

 

Without a doubt the authors correctly identify the need for greater agility to address the increasing volatility in supply chains. The question is what constitutes agility. Too many supply chain decisions are conducted by central organizations and decisions have to be approved by central organizations, greatly increasing the time it takes to reach a decision, which greatly reduces agility.

 

Our view, cpatured in the post entitled “ Volatility is here to stay“, is that front-line people should be making day-to-day decisions in response to realities on the ground rather than a theoretical plan developed at HQ (agility), but based upon targets set by HQ/Finance/… Human judgment should be allowed to prevail. Companies will always have to plan. Agility is when they respond rapidly and effectively when things do not go as they planned.

Kinaxis has just published its latest white paper, Making the case for Lean process lead-times: are your information process flows giving you a competitive edge?

 

Here is an abstract for the paper:

 

Regardless of the markets served, most producers have a common need: to respond and adapt to changes in the marketplace faster than their competition does. By adopting Lean order management and fulfillment processes, a business gains superior operations performance and flexibility; thus increasing their competitive edge. Since actual manufacturing and material lead-times are typically a small portion of total cycle time, reducing non-production administrative processes that have long cycle times can provide the most immediate impact.



Originally posted by Randy at http://blog.kinaxis.com/2009/07/making-the-case-for-lean-process-lead-times/

IBM published an interesting report in early 2009 titled " The Smarter Supply Chain of the Future " and recently commented on the report in an IndustryWeek blog post titled " Volatile Times Demand Pervasive Visibility and Flexibility to Mitigate Risk " in which they "… take the position that tomorrow’s supply chain will be Instrumented, interconnected and Intelligent." The core theme of the blog post is that all too often companies need to convene an emergency task team to deal with spikes in demand, as an example of volatility. The example used in the blog post is of a spike in 'flu vaccine for the H1N1 virus.

 

 

 

As the authors quite correctly ask, "Why in this data and networking-intense world today does it still take an emergency task force to respond to a spike in demand?" While I cannot argue with the authors' claim that visibility is the answer, I would like to address a related issue of perception.

 

 

 

At the core of the issue is volatility. All too often volatility is treated as an exception rather than the norm. This is a mentality that dates back to Henry Ford's comment that "They can have any color, as long as it is black". Manufacturing organizations and all the related training, on-the-job or at university, are focussed on maximizing utilization rather than throughput. Even Lean, which has had a dramatic effect on the productivity of manufacturing organization, has as one of its core tenets the concept of "level loading". Many of the Lean consulting companies promote this perspective, even quoting Ohno that "The slower but consistent tortoise causes less waste and is much more desirable than the speedy hare that races ahead and then stops occasionally to doze. The Toyota Production System can be realized only when all the workers become tortoises." I cannot argue with the perspective that indeed a level load may reduce waste in production, but equally it may create excess inventory and be too slow to react to changes in customer demand.

 

 

 

Fundamentally mass customization and global outsourcing are here to stay. Both of these introduce tremendous volatility into the supply chain. Mass customization is the greatest cause of volatility in the sense that even if the total demand remains the same, because of the increase in the number of end items, the demand for each end item has decreased a lot and therefore the volatility has increased. Say for example that a company had one product with a total demand of 10 units per week. Because of mass customization they now have 10 variants of the product, each with an average demand of 1 unit per week. It is immediately apparent that producing 1 unit of each variant, which seems natural from a "level loading" perspective, is likely to mean that a lot of demand is missed and that the company will need to keep quite a lot of inventory. When we now add the long supply delivery times which result from off-shoring and outsourcing of manufacturing, we can see that volatility is the norm.

 

 

 

The key findings of the IBM study are that supply chain visibility and risk management top the concerns of the companies interviewed for the study.

 

 

 

5-major-supply-chain-challenges

 

 

 

I think the primary cause of risk is volatility. Volatility can come in many guises including supplier failures, hurricanes, and customers changing their minds. A recent study by AMR identified supplier failure as the greatest supply chain risk, but as Kevin O'Marah points out, only a year ago the biggest risk was commodity prices and transportation costs. A colleague of mine, John Westerveld, points to the hurricane season as a key contributor to risk. All of these are expressions of volatility, but admittedly not all risks are directly related to volatility. But if we look through the AMR list of risks below, 25% contain the work "volatility" and at least another 25% can be grouped into the change/volatility category, such as supplier failure and regulatory compliance.

 

 

 

top-supply-chain-risks

 

 

 

In a previous blog post tilted " Nearly all supply chain risks are unanticipated " I discussed our concepts of risk identification, risk mitigation, and risk response. Much of the risk management literature is focussed on risk identification and mitigation. Many very good ideas have come out from the risk management guru's, but most of the analysis and approach is focussed on removing volatility. Almost no attention is paid to how companies should prepare themselves to be "change ready" or "risk robust". That is, without building unsustainable levels of inventory. Risk comes in many forms, from catastrophic natural events through mid-term supplier failures and on to day-to-day demand volatility that leads to lost sales or excess inventory.

 

 

 

Without a doubt visibility is a key component of being "risk robust". Knowing sooner about a situation that could cause harm to your company allows much more time to determine the consequence and devise ways of addressing the associated risk. But equally important is a collaborative environment in which several stakeholders can discuss and evaluate alternative courses of action rapidly and effectively by comparing each course of action against corporate metrics and against other proposed courses of action. This allows human judgment to be used to create innovative solutions while providing fact based evaluation consistent with overall corporate objectives, while full audit trails that provide full visibility to the decisions made and by whom the decisions were made ensure reduced "gaming" of the system. In this volatile world being responsive to risk is as important as identifying and mitigating against risk.

 

 

Originally posted by tmiles at http://blog.kinaxis.com/2009/07/volatility-is-here-to-stay/

The latest edition of IndustryWeek’s Manufacturing Business Challenge has been published. This month’s challenge discusses a company that’s been in cost reduction mode for months due to the economy, but is now starting to see some thawing and is struggling with how to transition back to a mindset of growth.

 

The full challenge follows:

For months I have been telling the executive staff, employees, and suppliers of CortConnect that business will get better. Some of that was probably me convincing myself, hoping that our markets for computer networking gear and peripherals will go up. But my comments were also an alert to everyone that they’d better be ready with plans in place — if not in motion — to capture business when it emerges. So why, today, am I still concerned that our efforts to ramp up for growing business are too slow, too little, and in some areas non-existent:

  • Production: We did a decent job of gradually downsizing production capacities, staff (through attrition), and inventories, which has saved our margins as times worsened. But even with a slight upswing beginning, we’re running into overtime and expediting, and our quality and delivery errors are rising. Why is growing production capacity, staff, and inventory so difficult?
  • Sales: Like production, CortConnect is operating with a downsized sales staff. And I see the smaller group now getting fat on the sales upswing (more dollars shared by fewer salespersons) and unable to contact all the sales leads we’re getting. We need a plan to expand our sales efforts quickly.
  • Suppliers: Our suppliers are hungry for business and recognize the opportunities popping up, but they’re having the same trouble as we are in committing their systems and processes to growth. They see us muddling about without a clear “go” signal, and so are reluctant to increase their capacity.
  • Company workforce: Because we’ve been so tightly staffed, everyone is focused on their own work at hand. They don’t have the time to look up or forward nor do they necessarily worry about it. Walking the shop floor and offices, I hear, “I’m already overloaded with what I’ve got.” It’s affecting everyone — sales staff, production staff, administrators — and, worse, no one even thinks about improving how they work anymore (i.e., “I just need to get this done now, I’ll worry about a better solution later.”).

How can I get CortConnect to break out of this holding pattern before we see all the new business take off without us and our reputation tarnished?

Solutions are proposed by Bob Ferrari of the Ferrari Consulting Group and Kinaxis. You can read the latest Challenge here.



Originally posted by Randy at http://blog.kinaxis.com/2009/07/shifting-gears-ramping-up-for-growing-business-sales/

A recent blog by Justin Fogarty at Supply Chain Excellence entitled “ Hurricane season: are youand your suppliers ready? “ highlighted the importance of factoring the risks associated with environmental events. In his blog, he used the coming Hurricane season to emphasize the point. Four points were mentioned as means to mitigating the impact of these natural disasters.

  • Get proactive, rather than reactive - If you're creating a contingency plan when a storm or longshoremen strike is imminent, it's too late. Few options will be on the table as the procrastinators all scramble. Since you can always be certain there will be events beyond your control in the next few months, it's certainly worth preparing for them ahead of time.
  • Do the math - Floods in the Midwest forced shippers to use more expensive modes of transportation. Modeling costs to determine when it's wise to pay the premium or wait it out will help you make critical decisions quickly. There are almost always options - the question is whether or not they are worth the added cost.
  • Beware the Bullwhip Effect - As we all know, one thing now can have huge impacts down the road. So understanding the inherent inputs, cost drivers, and risks to your supply chain will help you cope with disruptions so they don't reverberate across your materials, production, distribution, and customers.
  • Have a game plan for natural disasters - Obviously, each and every event will be different. But having a plan and an established decision making chain of command will go a long way. The last thing you want is a "Heck of a job, Brownie" situation where everyone is hoping someone else will step in and sort things out.

 

Given the increased supply-chain complexity and inter-reliance of partners across the globe, it quickly becomes clear that a storm anywhere in the world can immediately impact your organization. With this in mind, I would like to add one more point to the list. That would be to emphasize the importance of increasing visibility and collaboration across your supply chain. Nobody understands the risks associated with the Monsoon season better the suppliers in its potential path. Similarly, the North American Hurricane season may cause those suppliers unneeded disruption if they do not have visibility of your contingency plans.

 

Working with your supply chain partners across the globe in an effort to simulate potential high-risk events may seem unattainable to some, but with an open supplier relationship and the right tools it could in fact turn into an everyday occurrence; and an occurrence that happens for much less dramatic events.



Originally posted by jnafis at http://blog.kinaxis.com/2009/07/increase-supply-chain-visibility-and-collaboration-to-manage-risks/

I got an email from an old customer that I had done a Finite Capacity Scheduling (FCS)implementation at a few years back, inquiring about whether I knew if there had been any enhancements made to the product with regards to improving its ability to take material supply issues into account when scheduling.

 

After responding I no longer implemented Finite Capacity Scheduling systems as I had found a superior solution for production planning (and was tired of unmet expectations on the customers side due to the limitations of FCS), I started thinking about the best approach to the finite capacity problem encountered in many manufacturing environments.

 

The problem of bottlenecks in production is one that is common to all industries in all countries, no matter what their business. The question of the best way to deal with this problem has long been an issue for ERP system vendors and systems consultants alike. In order to address this critical issue in production planning, we need to examine the factors that go into making a planning tool effective for the user when dealing with finite or constrained capacity.

 

The main features required for an effective tool are as follows:

  1. The ability to model multiple types of constraints in the production process in a clearly understood manner
  2. The ability to integrate material and production capacity constraints into a single planning model
  3. The ability to collaborate with other users in the production process to ensure the best plan possible
  4. The ability to easily integrate and centralize data from multiple sources in a single system
  5. The ability to quickly and easily change demand and supply scenario's in order to determine the optimal plan
  6. The ability to react quickly and effectively to constantly changing real world events

 

If we use these requirements as a starting point, it quickly becomes apparent that many Finite Scheduling tools fall down in several areas. First of all, most FCS systems are designed from the production scheduling viewpoint, leaving materials and outsourced production constraints as a secondary consideration, if considered at all. Since current manufacturers rely heavily on outsourced procurement and purchased materials, this lack of deep functionality tips the scales to constrained planning systems. Further to this point, a constrained planning tool which also has sophisticated Demand Planning capabilities integrated into the tool moves the argument even further in favour of Constraint planning. FCS tools tend to narrowly focus on detailed capacity constraints (changeover sequence, etc), which require a great deal of complex modelling and setup to properly emulate real world scenario's. Most of these bottleneck issues can be satisfactorily addressed with simple constraint modelling if viewed from the perspective of the entire supply chain, thereby greatly reducing implementation complexity and allowing a holistic approach to supply chain management.

 

The next thing we need to look at is scalability and the ability for multiple users to simultaneously access the tool from multiple parts of the globe. This requires a data engine which can handle the complex calculations required in finite or constrained scheduling along with the ability to accommodate the large amount of data which is required in order to give a truly accurate picture. Because of the complexity of constrained systems, multiple users in the supply chain must be able to work together in a collaborative manner in order to move the planning process forward. The most accessible and cost effective answer to this requirement is to use the Internet as a platform on which to construct a broad based, secure solution. In other words, the tool must support current state of the art security and data transmission technologies over the Web, and allow users to access the tool via a web based interface.

 

Many vendors tout the benefits of a single platform, which from the transactional side of business cannot be questioned. However, finite capacity and constraint planning are not just transactional functions, but require advanced functionality only found in systems designed specifically for planning. Since most FCS systems are very much geared to the production process in terms of integration, the nod must once again go to full featured constraint planning systems with its wider integration capabilities.

 

Both full featured constrained planning systems and FCS systems have visual simulation and user friendly what if capabilities. However, the ability to compare different scenarios is critical for the development of an optimized plan, and FCS systems with their Gantt chart displays have difficulties meeting this requirement. A constrained planning system with robust score carding capability comes out ahead in this regard.

 

Lastly, both types of tools support rapid changes to the plan thru sophisticated user interfaces, but only the constrained planning system incorporates the demand and materials planning capability required to reflect all changes in the supply chain effectively.

 

In summary, when all relevant factors are considered in the selection and implementation of a scheduling system, it can be clearly demonstrated that the full featured constrained planning system will give you a better tool to manage the entire supply chain than will a production focused FCS tool, resulting in a better ROI for the project. As well, most production bottleneck issues can be solved with simple constraint based models, so why limit yourself to addressing one segment of your supply chain when a holistic approach can bring much greater benefits to the organization as a whole.



Originally posted by mbuckley at http://blog.kinaxis.com/2009/07/constrained-planning-vs-finite-capacity-scheduling-which-way-to-go/

Justin Fogarty over at Supply Excellence has reminded us in this blog post that hurricane season is again upon us. While this year's hurricane season is forecast to be near or below average, there is still a 48% risk of a major storm hitting the US. Justin's blog includes steps from Rachel Rutoski's post which provides excellent advice for companies looking to reduce risks from natural disasters. I've summarized her advice here:

  • Get proactive, rather than reactive. Establish contingency plans BEFORE the event happens
  • Do the Math. Figure out what alternative transport modes / routes will cost. This will help make decisions quickly
  • Beware the Bullwhip effect. Understand the downstream implications of a disruption
  • Have a game plan for natural disasters

 

One thing to remember. If a natural disaster does strike, your company won't be the only one scrambling to re-route traffic out of the affected area. Make sure your contingency plans include contracts with alternate carriers or previously defined alternate routes so that the switchover happens quickly and doesn't get bogged down. Also, be sure to account for the extra cost …if shipping companies are near capacity or if you are making emergency route changes, you may need to pay a premium to get your goods moved.

 

Justin's article focuses on the impact of a natural disaster on transportation through that zone. A more significant impact can occur if your supplier's business is in that area and is impacted by the disaster. A National Association of Manufacturers (NAM) Survey reported that 32% of respondents said that damage caused by Hurricane Katrina in 2005 affected their ability to ship products to their customer. To mitigate this risk, companies need to understand what parts are critical (sole sourced or long lead time parts that are used in higher volume / value end items) and whether suppliers of those parts are in high risk areas. Those parts that are critical and at risk should have a contingency plan. Contingency plans could include the following;

  • holding a buffer inventory or the part at risk
  • identifying or developing alternate sources for the critical part.
  • identifying alternate parts used in an assembly
  • identifying substitute items that could be sold in place of the items that can't be built

 

Similar to transportation contingencies, it's too late to develop a plan if the event has already happened. Make sure that you identify the risks and develop contingencies now, before the disaster strikes.

 

What contingency plans do you have for this year's hurricane season? Post a comment back and let us know!



Originally posted by jwesterveld at http://blog.kinaxis.com/2009/07/supply-chain-risk-management-tips-for-hurricane-season/

The current collapse in the US housing market and the ensuing financial crisis which lead to one of the worst recessions in the post War era, has prompted governments of all stripes to significantly increase spending. What the short and long term implications of these actions are not fully known at this time, but can be extrapolated based on past events and economic theory. How these unfolding events affect manufacturing and the supply chain will have a very significant impact on the future profitability all companies involved in this space.

 

What we can foresee happening is the massive amount of deficit spending by countries already financing government debt will place greater demand on the public and private debt markets. The implications for long term interest rates and inflation are not good. With so much demand chasing a finite amount of financing, long term rates are bound to begin rising. Add in the inflationary effects of 'quantitative easing' (governments printing money to flood the financial system), and the need to raise interest rates even further to hold inflation down becomes apparent.

 

What does this mean for the supply chain and its contribution to a company's health and ability to grow earnings? As interest rates rise, the cost of borrowing will rise with it. This will have a direct impact on the carrying cost of inventory, which in turn will have a direct impact on a company's bottom line, and its ability to compensate it employees and shareholders. In order to mitigate these negative consequences, companies will be forced to reduce their carrying costs dramatically, which means reducing the levels of inventory they will be able to carry. However, in an expanding economy stimulated by government intervention, demand will begin increasing, putting companies in danger of stock outs or lost sales.

 

Company management must therefore strive to reduce these risks as much as possible, and in order to do so, best of breed sales & operations planning (S&OP) tools will be essential. Due to the uneven recovery anticipated, correctly reacting to and meeting supply shortages and demand fluctuations will be critical to a company's ability to satisfy the customer and generate profits. The ability for corporate planners to leverage all the data in the companies supply chain (not just a few ERP 'silos') and collaborate within the entire supply chain will directly affect theoperations performance of all units of the business. Add to that the significantly greater cost of transportation and longer lead times inherent in an outsourced supply chain, and the ability to plan and execute to ever more restrictive inventory guidelines while maintaining order fulfillment goals becomes even more challenging.

 

A good S&OP solution should includefour key features :

  1. Ease of combining disparate data sources into a single unified whole
  2. The ability for multiple users located in different areas and parts of the supply chain to interact in a collaborative way
  3. The ability to simulate and determine optimal scenarios in order to arrive at the best plan possible
  4. The ability to execute on the plan once it is derived, and fine tune it to meet changing circumstances

 

These necessary S&OP systems cannot be implemented in a day, so the time to prepare for the coming increased supply chain turbulence is now, before your company is caught in a downward performance spiral it cannot get out of.



Originally posted by mbuckley at http://blog.kinaxis.com/2009/07/the-effects-of-stimulus-spending-on-the-manufacturing-and-distribution-environment/

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