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2016

As a small business owner or executives, do you ever feel like “the cards are stacked against you”?GSW NBA_Playoff_Record Guardian.jpg

 

Billy Beane was an executive manager. Perhaps you’ve heard of him—General Manager of the Oakland Athletics (the “A’s”).

 

He certainly felt like the cards were stacked against him.

 

In 2002, he was managing the team with the second lowest payroll in Major League Baseball (MLB), and just before the season opened, he had to give up the team’s three most prominent—and, of course, expensive—players.

 

Of course, if you’ve read Moneyball: The Art of Winning an Unfair Game or seen the Moneyball motion picture, you know the story.

 

How did Billy Beane do it?

How did one of the most disadvantaged companies (read: teams, in this case) in their industry (read: Major League Baseball) become such a winner? What made a team with no visible advantages—and many clearly visible disadvantages—achieve success rates that led them to very near the top of their industry in such a short period of time?

 

The answer was that Billy Beane saw something that no one else was seeing at the time.

 

He saw that the metrics by which all the other teams were measuring performance and making decisions had a fatal flaw that could be exploited.

 

Billy Beane changed what he looked at—what he measured—and it changed how he managed
(read: made decisions).

 

Turning to basketball

Recently, the Wall Street Journal carried a front-page story regarding the NBA’s Golden State Warriors.

 

In the NBA (National Basketball Association), something very similar to Billy Beane’s management revolution has happened recently.

 

The Golden State Warriors revolutionized basketball.

 

“For many years [more than 100, in fact] after James Naismith invented basketball in 1891, the prevailing view was that the most important area of the court was near the basket. From Wilt Chamberlain’s finger-rolls in the 1960s to Kareem Abdul-Jabbar’s sky hooks in the 1970s to Mr. Jordan’s soaring dunks in the 1990s, the NBA was the dominion of plays who owned the rim.” [WSJ]

 

But, for the Golden State Warriors, changing what they looked at and the related metrics, changed how they managed and made decisions.

 

The Wall Street Journal article tells us, that “from the beginning, the Warriors brass [read: management] placed an unusually strong emphasis on numbers.”

 

As Warriors’ managers and coaches looked at the numbers, “[t]he data dive yielded many insights, but the Warriors eventually zeroed in on the 3-point line.” They discovered that “NBA players made roughly the same percentage of shots from 23 feet as they did from 24 [feet]. But because the 3-point line ran between [these two points], the values of those two shots were radically different. Shot attempts from 23 feet had an average value of 0.76 points, while 24-footers were worth 1.09.”

 

By looking at the game differently, the Warriors discovered that being “in the paint” was not necessarily where the best opportunities are found. Warriors management had discovered “an opportunity.” The average NBA player’s “rate of return” on a shot attempt could be improved “by 43%” by merely moving back from 23 feet to 24 feet before taking their shots.

 

Ben Cohen (mailto: ben.cohen@wsj.com) writing for the WSJ summed up the real management difference saying, “The difference between the Warriors and everyone else [in the NBA] was what the team decided to do with this information.” They changed how they managed and coached their team and the rest, as they say, is history.

 

Lessons for your business

There is a parallel for businesses like yours today—a lesson that very few have taken to heart.

 

Sure. You can continue to try to achieve outstanding success against the odds stacked against you by using the same thinking and same metrics that all your competitors are using. The results are likely to be that you will remain much like your competitors. The likelihood that you will emerge as a radically more successful firm are slim. You might even lose ground against many of your competitors over time—depending on dozens of factors.

 

But, if you begin by installing new thoughtware [Smith and Smith, Demand Driven Performance Using Smart Metrics] like Billy Beane did, and like the Golden State Warriors have done, the chances of your emerging from the pack and gaining a real competitive advantage are much improved.

 

We can help. Contact us.

 

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PICTURE CREDIT: http://www.theguardian.com/sport/2016/apr/24/stephen-curry-knee-injury-golden-state-warriors-nba-playoffs

 

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Almost since the introduction of computing systems for business, there has been a sort of underlying belief by many that there is a direct correlation between the volume of available data and the opportunity (at least) to manage more effectively. This belief system can be reduced to a simple, widely-held, axiom:

 

If we have more data, we can manage more effectively.

 

There is, however, a big problem with this assumption.

 

Dave Stenfort, Director of Operations at internationally recognized Anritsu, talked about this very matter. In an interview with Bob Bowman of Supply Chain Brain, Stenfort had this to say:

“It was really hard to get to the data—to what was the important data versus all the pile of data…. What we had to do… with our data was to get rid of all the data that wasn’t important [in order] to get to the data that was really important, so we could act just on the data to support our customer.” [Emphasis added.]

 

The better axiom

Carol Ptak and Chad Smith, writing in Orlicky’s Material Requirements Planning (Third edition) [1], point us to the first law of manufacturing:

 

All benefits will be directly related to the speed of flow of materials and information.

 

This first law of manufacturing was articulate nearly half a century ago. That, of course, was long before there was the absolute flood of information now made available to enterprises of every size and description through the IoT (Internet of Things) and low-cost, high-speed computers and data storage system.

 

Today, as Ptak and Smith have said, there needs to be a modification to the first law of manufacturing. The updated first law reads:

 

All benefits will be directly related to the speed of flow of relevant materials and relevant information.

 

Better, more effective management does not flow from access to more data.

 

Better, more effective management flows from access to relevant information. But, additionally, there needs to a sound, underlying theory upon which to base both management’s understanding and actions.

 

W. Edwards Deming [2] offered many strong admonitions to this effect:

“Information is not knowledge. Knowledge comes from theory.”

“There is no knowledge without theory.”

“Experience teaches nothing without theory.”

“We should be guided by theory, not by numbers.”

 

Got improvement?

We find that mediocre performance levels in many of the companies with which we come into contact stems from two crucial factors:

 

  • Management effectiveness is being stymied by an overwhelming flood of data—or, at least, access to data—but they are unable to sort out the relevant from the irrelevant amidst the flood
  • Management has no coherent and effective theory by which to make decisions and set priorities—everything they thought they understood, they have already tried, applied, and found it produced little or no improvement (sometimes they even found themselves moving backward)

 

We are able to help clients like these by introducing them to “new thoughtware.” [3]

 

Chances are we can help your enterprise and your supply chain, as well.

 

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[1] Ptak, Carol A., Chad Smith, and Joseph Orlicky. Orlicky's Material Requirements Planning. Third ed. New York: McGraw-Hill

[2] W. Edwards Deming is the man whose management theories revolutionized and revitalized Japanese industry following World War II. He went to Japan after his management theories had been rejected by just about every manufacturer of note in the United States. In his frustration at one point he said, “Export anything to a friendly country except American management.”

[3] The term “thoughtware” is not original with us. We owe that term to Debra Smith and Chad Smith and their excellent book Demand Driven Performance Using Smart Metrics.

 

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In enlightening (video) interviews by Supply Chain Brain’s Bob Bowman, Dave Stenfort, Director of Operations at Anritsu, talked about the supply chain management challenges he and his team have faced. Anritsu has experienced business expansion in the information and communication field. The company's leading business division provides products and services used in the development, manufacture and maintenance of a range of communication systems ranging from mobile phones to the Internet on a worldwide scale.

SupplyChainLeadersMeetTodaysDemand.jpg

Excellence in Firefighting

Stenfort made a profound admission regarding Anritsu’s recognition of its real case in the past: “Our organization was excellent at firefighting.”

 

Sadly, too many small to mid-sized business enterprises with which we come in contact actually believe that they are improving when, in fact, they merely getting better at firefighting.

 

There are several serious problems with “getting better at firefighting.” One of the crucial problems with firefighting, in general, is that it cannot and will not lead to any real improvement. Like its very real namesake, “firefighting” in the enterprise can only accomplish two things: 1) limit the damage being caused by the fire, and 2) lead to a restoration of the pre-fire normality. Recovery to an prior state is never, ever improvement.

 

Anritsu’s Stenfort went on to articulate clearly other damaging consequences of getting “excellent at firefighting.”

 

“The problem with firefighting,” Stenfort stated flatly, “is it takes a lot of resources, a lot of effort, and there [are] a lot of casualties.”

 

Of course, “a lot of effort” and “a lot of resources” are not so subtle code words for spending every enterprise’s most precious resources—time, energy, money and management attention. All the time, energy, money and management attention wasted on firefighting—restoring normality time after time—is time, energy, money and management attention that can never be spent on real improvement.

 

Of course, it’s bad enough if the firefighting hurts your enterprise internally. But, as Stenfort confessed, “Often you miss something that might affect the customer.”

 

Now, your enterprise’s failure to focus on real improvement and reliance on ongoing attempts to “improve firefighting,” has hurt your customers. This, in turn, will probably lead to reduced sales opportunities and potentially lost customers. The next step, then, is to increase spending on sales and marketing in order to make up for lost sales, retain offended customers, or capture new customers to replace those that have fled elsewhere.

 

Bottom-Line Results Are Affected

If we sum up the real financial outcomes for enterprises determined to become better at firefighting, rather than to uncover ways to create real, long-lasting improvement, they come simply to these: reduced revenues and increased operating expenses. These financial elements are disbursed across the enterprise, and are almost always unrecognized, but they are listed here:

  1. Increased payroll costs and expense from hiring additional personnel and more overtime
  2. Lost revenues from lost sales
  3. Increased expenses for sales, marketing and sales promotion
  4. Profits are reduced
  5. Return on Investment declines

 

When we work with our clients, our focus is always squarely on the enterprise’s bottom-line. We know that getting better at firefighting will never deliver long-term improvement that can be measured in terms of ROI (return on investment).

 

We use Thinking Process tools that help the whole management team to begin unlocking “tribal knowledge” while correlating every improvement with bottom-line results.

 

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We would like to hear from you. Are you getting better at firefighting? Or, are you really improving? What is your view of what is happening in your enterprise and your supply chain?

 

Please leave your comments below. Thank you.

 

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I know you didn’t ask, but here are some of the reasons that I do not advocate the purchase or use of any Advanced Planning & Scheduling (AP&S) system that is based on traditional methods:SAGE500 Routing LaborStep.jpg

 

To begin with, it’s too complex. Take a look at a typical routing detail for a labor step in your ERP or MES system. In the accompanying example, each of the following fields must be completed with reasonable accuracy for every routing step in order for the AP&S to even calculate a schedule that has any hope of being correct—and, even then, it is only correct in theory:

  1. Move Hours
  2. Queue Hours
  3. Set Up Hours
  4. Reset Hours
  5. Pieces before Reset
  6. Scrap Pieces
    and/or
  7. Scrap Percent
  8. Efficiency Rate

 

There are a several of problems with this data hygiene requirement:

  1. Most companies do not know what most of these various values should be with any reasonable accuracy.
  2. In most companies, their processes are not standardized enough, so set-up times, run times, move times, queue times and efficiencies are statistically out of control. No matter what times they choose to put into these fields, the actual performance times will vary wildly, so the schedule will not hold in any event.
  3. People who work in production already know that any schedule produced by the system will be incorrect (when compared to reality) and out-of-date before it can even reach the shop floor.

 

Because of the inherent complexity, massive data dependency, out-of-control processes, and invalid base data being fed into the system, fewer than five (5) percent of companies that buy traditional AP&S systems actually implement and use them. This holds true whether they have purchased from Sage, JD Edwards, SAP or any other traditional AP&S system.

 

Some of the roughly five percent that do implement them, do so because executive management has insisted by saying something like, “Look! We’ve spent tens of thousands of dollars to buy this system to help make our operations better. You are going to use it.”

 

As a result, in a good many companies, the AP&S system is, in fact, run every day and the reports dutifully produced. Nevertheless, the shop floor is still managed the same way it was before they purchase the AP&S system—largely by the seat of the pants, best guesses and massive expediting efforts. Flow is not positively affected in any way.

 

Since the “Clairvoyance” component of AP&S systems is “still in development” and is not likely to see the light of day anytime soon, there is no AP&S system that can adjust the schedule because Jane got sick and left 3.3 hours early from her post on the shop floor, and Ron had a fight with his teenage son last night and is only operating at 47.4 percent efficiency today.

 

Equally as important, three different people in the same company, looking at data streaming from an AP&S system, may very easily have three different opinions as to what should be the “top priority” at any given work center. This is because, apart from calculated schedule start-times (which are likely to be wrong relative to reality anyway), the AP&S system has no clear way to communicate production priorities. There is no single signal that indicates priorities properly.

 

Due-dates are generally not a good signal for priorities.

 

Why?

 

Because, AP&S calculated due-dates do not necessarily tell you which shipments to customers may be jeopardized (or in jeopardy already) by a decision made at Work Center X on Item ID ‘ABC’.

 

Companies with AP&S systems are just as likely to have one or more staff expeditors whose full-time jobs amount to 1) spending half their days trying to figure out the priorities are, and 2) spending the other half the day figuring out where to “break the schedule” that their expensive and costly-to-run AP&S system created for them.

 

There are far, far better—non-traditional—ways to determine what should be made when, and to set effective priorities on the shop floor. But, that discussion will have to wait for another day.

 

What do you think? We would like to hear from you. Please leave your comments below.

 

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In enlightening (video) interviews by Supply Chain Brain’s Bob Bowman, François Martin-Festa, Supply Chain Global Planning VP at Schneider Electric, and Zoltan Pekar, VP for Global Supply Chain Division at Roland DG Corporation, talked about the greatest challenges they faced in moving their supply chains toward significant improvement.

SupplyChainLeadersMeetTodaysDemand.jpg

In Part 1, we discussed François Martin-Festa’s biggest challenges at Schneider Electric. In this article, we will see the biggest challenge faced by Zoltan Pekar and his supply chain team a Roland DG Corporation.

 

Becoming truly customer-centric

 

In the interview, Pekar told Bob Bowman that Roland DG’s “biggest challenge… is meeting the customer demand with flexibility at the manufacturing sites—becoming truly customer-centric.” [Emphasis added.] That “is what we are trying to achieve,” Pekar added.

 

Trying to rebuild your supply chain in a way that moves an enterprise from an inside-out management approach to one that is decidedly outside-in means a paradigm shift. The former sacred cow of “push and promote” methods have to be sacrificed.

 

Pekar made it very clear that Roland DG is “moving away from a structure whereby we manufacture and [then] push out to the market through our subsidiaries….” In place of that mentality, he adds, “we actually want to join everyone together as one big global organization, providing a full value change, and connecting the complete supply chain from end-to-end—from manufacturing to the customers.”

 

While Pekar did not reveal the precise theory and methods he and his team were adopting as they made this change, it is clear by the language employed that they, too, had discovered what has been called the first law of manufacturing:

 

All benefits will be directly related to the speed of flow of materials and information.

 

And the extension of that law, which reads:

 

All benefits will be directly related to the speed of flow of relevant materials and relevant information.*

 

By “connecting the complete supply chain from end-to-end,” the flow of relevant information (actual customer demand), not the largely irrelevant information of inaccurate forecasts, can become the real driver in the flow of relevant materials.

 

By definition, by the way, connecting the supply chain end-to-end and accelerating the flow of materials based on actual customer demand is the very essence of the other point Pekar made: “[B]ecoming truly customer-centric… is what we are trying to achieve.”

 

There is lots of lip-service given these days to becoming “customer-centric.” But, becoming truly customer-centric means working tirelessly toward the goal of connecting the flow of relevant information and relevant materials from one end of your supply chain to the other. Demand-driven planning is a relatively new field of learning and technologies. There are tools and people available to help even small to mid-sized firms become demand-driven quickly and at relatively low investment.

 

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[*] Ptak, Carol A., Chad Smith, and Joseph Orlicky. Orlicky's Material Requirements Planning. Third ed. New York: McGraw-Hill

 

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Tell us how do you approach supply chain strategy and tactics? Please leave your comments below. Thank you.

 

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NOTE: At little side-trip today--something different from my normal fare. I hope you enjoy it.

 

Amazon.com has nearly 250 million active users, of which about 54 million (ca. 22 percent) are Amazon Prime customers. An Amazon Prime member spends about 140 percent more per year at Amazon.com than do non-Prime customers (about $1,500 a year versus $625 per year for non-Prime customers). So, it seems pretty clear why Amazon would like as many as possible to jump on the Amazon Prime wagon.AmazonPrime.jpg

 

I actually considered Amazon Prime membership, because I buy quite a bit through Amazon.com. I even signed up for the free trial membership, but canceled before the trial period ended. Here are nine reasons why Amazon Prime is not right for me.

  1. Call me “cheap,” but I find that a good used book reads just as well as a brand new copy. So, I buy mostly used books. That means fulfillment is general not “by Amazon,” so the free shipping perk doesn’t work for me. I probably save much more by buying used, rather than new, books than I could or would save buying new books, paying for an Amazon Prime membership, and getting free shipping.
  2. “Lightning deals” are meaningless to me because I don’t buy on impulse—at least, if I do, it is such a rare event that the Lightning deals would provide insignificant savings. Most of the Lightning deals are on things I wouldn’t buy anyway.
  3. Since I buy mostly books from Amazon—as opposed to household supplies, for example—free same day shipping is generally unimportant to me. I seldom need a book the next day when I buy one.
  4. I looked at “Prime Video,” and there’s really not much there that interests me. Besides, I already have NetFlix and Xfinity (Basic HD Digital) cable TV. Since what I saw on Prime Video would not supplant what I use most on these other two services, I wouldn’t be saving anything, because I would not be dropping either of the other services.
  5. I don’t really have any interest in most of the programming on Showtime, and I get Starz from Xfinity, there’s no benefit or savings for me from that perk.
  6. I don’t spend a great deal of time listening to music, and what I do listen to I get from my collection of CDs or sources other than anything Amazon Music would offer me. (The last time I bought a CD was probably a decade or longer ago, and I buy timeless classics—like Mozart, Bach and Beethoven—so I won’t be downloading the latest pop music.)
  7. The Kindle Lending Library, unfortunately, seems to offer the best hope of value for me. However, I’m still old fashioned and like—most of the time—to hold a book in my hands. And, since I read mostly nonfiction business books, I also like to have my highlighter handy and mark up my copy. A lending library of electronic books probably won’t satisfy me.
  8. Prime Pantry is probably something I would never use. Going back to “cheap,” we buy lots of store brands—rather than name brands—and get our savings that way. I don’t see that we would ever get the same value for our money from Prime Pantry.
  9. The unlimited photo storage offer had some appeal. But I have more than 40,000 digital images. Just uploading them and downloading them from cloud storage seems like a daunting, time-consuming task—even with my relatively fast broadband connection through Xfinity. I prefer to keep multiple backups on local USB hard-drives that can be purchased now for $50 to $100 per terabyte.

 

Let me know if Amazon Prime works for you, and why? Call me “curious.”

 

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In enlightening (video) interviews by Supply Chain Brain’s Bob Bowman, François Martin-Festa, Supply Chain Global Planning VP at Schneider Electric, and Zoltan Pekar, VP for Global Supply Chain Division at Roland DG Corporation, talked about the greatest challenges they faced in moving their supply chains toward significant improvement.

SupplyChainLeadersMeetTodaysDemand.jpg

Protecting the (real) bottlenecks

 

For Martin-Festa at Schneider Electric, the “biggest challenge was… to be able to put a strategy together, and to connect all the key stakeholders, [in order] to be able to absorb and catch the market fluctuation from… downstream and… mirror it to the bottlenecks… on the upstream.”

 

Several crucial points are worth noting in this brief statement:

 

  • Strategy – Taking a strategic approach to supply chain management should include defining how return on investment (ROI) is going to be achieved through the tactical execution that flows from the strategy.
  • Connect – Include in your strategy and plan steps to connect all the key players in your supply chain. Don’t just connect their technology. Connect with them through strategic and tactical collaboration to strengthen the ties that make your supply chain more than a collection of arm’s length transactions.
  • Absorb market fluctuation – Your plan should include specific methods used to determine the strategic sizing and placement of buffers (i.e., stock, time and/or capacity) to absorb and “catch” (i.e., stop) supply and demand fluctuations in their tracks. That is the only way to dampened, and even, end, the damaging results of the bullwhip effect.
  • Bottlenecks – Any strategy that has not fully recognized the relatively small number of actual “bottlenecks” (i.e., constraints) in the ability of the supply chain to sustain the flow of relevant materials is, ultimately, an ineffective strategy. Most importantly, do not be afraid of slaying a few “sacred cows.” Many times significant “bottlenecks” stem from policies and procedures, not physical constraints in the supply chain’s systems. “Slay” them and get them out of the way. That way you can deal with the real (physical) bottlenecks to flow.

 

How do you approach supply chain strategy and tactics? Please leave your comments below. Thank you.

 

Stay tuned for Part 2 of “Biggest supply chain challenges” coming soon.

 

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