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2017

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We have rules everywhere.

 

We have operating procedures (read: rules). We have policies (read: rules). Our software executes business rules against the data we supply. We have more or less formalized “rules” by which we determine safety stock levels, reorder points, order cycles, and much more.

 

Carol Ptak and Chad Smith, in the outstanding book DDMRP – Demand Driven Requirements Planning make two important observations about rules:

 

  1. Most rules are life limited. Rules are instituted most often based on assumptions about the environment at the time they [are] made. Rules are often made to accommodate certain limitations. When those assumptions or limitations change, the rules must be reexamined to determine whether they are still appropriate. Souder’s law states that “repetition does not establish validity.” Simply continuing to do something that has always been done does not define whether it is, or ever has been, the appropriate thing to do. Worse yet, the longer the repetition, the more invalid or inappropriate the rule [is likely to] be.
  2. “Optimizing” inappropriate rules is counterproductive. Attempts and investment meant to enable or accelerate compliance [with] rules that are inappropriate can be devastating to an organization. If the rule is not only inappropriate, but also damaging, then the organization is at risk to do the wrong things faster.

Tools versus Rules

If the tools we have and use are merely attempts to optimize or accelerate the enforcement and execution of rules that may be out-of-date, outmoded, or simply wrong for the current (or, actual) circumstances, then our tools will have little value to us.

 

Let us consider an example tool—data collection.

 

Data Collection and Analysis

If you are like most of our clients, you are already swimming in data. Your existing ERP system probably collects and stores millions of data points. Perhaps, it even collects and stores millions of data points every day!

 

It now becomes your job to sort out the relevant information from the irrelevant data that is accumulating.

 

But, wait!

 

What if some of the data you collect is incorrect, or the analysis applied is misleading?

 

For example, you record stock-outs. But, what if the stock-outs are being caused by bad rules (a policy constraint, for example) or by bad assumptions that feed into the business rules being applied to supply chain planning and execution?

 

Instead of looking for new tools and better analysis, maybe it’s your rules that need to be reassessed. In short, maybe it’s new thoughtware you need instead of new software.

 

What problem are we really facing?

We find that, by far, the majority of the supply chain executives, leaders and managers with whom we come into contact believe that their biggest challenge—the “problem”—they are facing is costs.

 

“We’ve got to reduce our costs,” they keep telling themselves. “We need to find ways to cut shipping costs, production costs, warehousing costs….” On and on goes the cost-cutting mantra.

 

So, they look for new tools to help them cut costs.

 

But, in a supply chain, the real problem to be dealt with is FLOW (not costs).

 

When the FLOW of relevant materials (Throughput) [1] is maximized in the supply chain, costs are automatically reduced and efficiencies [2] automatically are improved.

 

When the FLOW of relevant materials becomes the real problem that the supply chain executives are tackling, the two key system-wide performance metrics automatically start to improve. What are those metrics?

  1. On-time performance
  2. Return on investment

 

What is the real problem your supply chain (or enterprise) is facing? What tools are you using to attack this problem?

 

Have you considered new thoughtware before spending money on other new tools?

 

We would like to hear from you. Please leave your comments below, or feel free to contact us directly, if you prefer.

 

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NOTES:
[1] Throughput we define as revenues less (only) truly variable costs (without allocations)
[2] The efficiency of the system (i.e., the enterprise or the supply chain) can be measured in the ratio between Throughput and Operating Expenses (T/OE). The larger this number, the better your system is performing.

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For most of the time since the late-1980s, the market capitalization for Toyota roughly equaled, or exceeded, the sum of the “Big Three” in Detroit. Although wishful thinkers today 1913 New Assembly Line.bmpattribute much of Toyota’s present profitability to currency manipulation of the Japanese yen, in the 1990s, with a depressed yen and an exploding U.S. stock market, Toyota’s market value still exceeded that of its much larger competitors. [1]

 

“The ability to focus on long-term objectives has been a critical factor in success at Toyota,” say James Franz and Jeffrey Liker writing on the SME (Society of Manufacturing Engineers) website. [2] This long-term thinking Franz and Liker set in apposition to the typical thinking they find in most other companies. The writers continue: “Contrast this to the ‘typical’ thinking that we encounter in other companies. We find that most publically-traded companies are intently focused on the next quarter’s numbers….” The results of such thinking tend to lead to actions resulting in “superficial improvements that cannot be sustained over any period of time.” [3]

 

Let’s not pretend

Let’s not pretend that this focus on the short-term outcomes is a symptom found only in publically-traded companies.

 

We work almost entirely with privately-held companies and find that they, too, are very frequently afflicted with the same short-sightedness.

 

The short-term thinking in publically-traded corporations is mostly driven by the need to show some kind of improvement in the next quarterly report—and by C-suite bonuses frequently driven by such results. Whereas, the short-term thinking in most privately-held companies is driven mostly by other factors—like cash flow, reports to lenders, such.

 

Nevertheless, the short-sightedness persists.

 

And the persistent short-sightedness drives many actions that are damaging to the long-term prospects and competitiveness of the companies.

 

I remember the 1980s well

I well remember the 1980s. U.S. automakers were struggling against imports from Germany, Japan and elsewhere.

 

While U.S. automakers reported quarter after quarter of (frequently) record-setting losses—losses in the billions of dollars—they were unanimously intent on one thing: cost-cutting.

 

Yet, the more they cut costs, the more their profits declined.

 

Meanwhile…

 

Toyota, too, was very focused. Toyota was focused on the one thing that they knew would make them profitable in the long-term: that one thing was FLOW.

 

Oh! The irony of it all

The U.S. “Big Three” were focused on cost-cutting—reducing costs through ever-improved efficiencies. And, Toyota was focused on FLOW.

 

But, here is the real irony of it all.

 

To appreciate the starkly different kinds of thinking that characterize Toyota and the American Big Three [automakers], consider the following meeting in 1982 between Eiji Toyoda, then head of Toyota Motor Corporation, and Philip Caldwell, then head of the Ford Motor Company. At the time, Toyota was emerging as the lowest-cost producer of the highest quality automobiles in the world. Ford and its Big Three partners were then plagued by falling market share, rising customer dissatisfaction with the quality of their vehicles, and unprecedented financial losses. Presumably, Caldwell visited Toyota in Japan in 1982 seeking new ideas. During Caldwell's visit, his host, Mr. Toyoda, is said to have toasted Mr. Caldwell by saying, "There is no secret to how we learned to do what we do, Mr. Caldwell. We learned it at the Rouge." [4]

 

The “Rouge” referenced by Mr. Toyoda was Henry Ford’s River Rouge complex near Dearborn, Michigan, which both Kaiichi Toyoda and Eiji Toyoda visited. Kaiichi visited ‘the Rouge’ in 1929 and his nephew, Eiji Toyoda, visited it again in 1950, to study Henry Ford’s methods.

 

And, what was Henry Ford’s adamant focus and, indeed, the underlying concept behind the River Rouge complex’s design and development?

 

The answer is simply this: FLOW

 

Not costs, but FLOW.

 

Henry Ford understood that if you had FLOW—if you focused on FLOW; if you maintained FLOW—that efficiencies would automatically be high and costs would automatically be low.

 

Somehow, all that got lost by Ford and other U.S. automakers as they focused more and more on short-term outcomes.

 

Think about that next time

Think about that next time you—or someone else in your company’s supply chain—says something like:

“We’ve got too much inventory! Cut it.”

“Why are we out of stock on that? Everyone knows it’s critical.”

 

These kinds of statements clearly show that FLOW has been disrupted. Overstocks mean FLOW has unexpectedly slowed or stopped. Out-of-stocks indicate that FLOW on the supply side has slowed or stopped, or that FLOW on the demand side has unexpectedly increased.

 

Worse!

 

The commands just offered don’t touch at all on the long-term health of the organization. They are just short-term, firefighting orders intent on restoring normality—even if “normal” was way below optimal.

 

Just think about it.

 

Are you focused on FLOW and the long-term health of your supply chain? Or are you merely trying to get through the end of the day, the end of the week, or the end of the month.

 

Is there any linkage at all between your day-to-day actions and your supply chain’s long-term strategy? Do you even have a long term supply chain strategy?

 

We can help.

 

 

Let us know how you are addressing these kinds of challenges in your supply chain? Do you have a process of on-going improvement (POOGI) in place?

 

Leave your comments below, or feel free to contact us directly, if you prefer.

 

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[1] Johnson, H. Thomas, and Anders Bröms. Profit Beyond Measure: Extraordinary Results through Attention to Work and People. New York: Free, 2000. Print.

[2] Franz, James K., and Jeffrey K. Liker. "The Toyota Way: Helping Other Help Themselves." www.sme.org. November 2012. Accessed September 9, 2013. http://www.sme.org/MEMagazine/Article.aspx?id=69059&taxid=1415.

[3] Franz and Liker, ibid

[4] Thomas and Bröms, ibid

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For most of you who read this, the following is a true statement:

 

Your supply chain is not part of your business, it’s your whole business.WARNING Complacency.jpg

 

Without your supply chain, you would be out of business!

 

Many (read: most) supply chains are not ready for the future

McKinsey, the renowned management consulting firm, recently released a report stating that many “supply chains are not equipped to cope with the world we are entering.” The report says, “Most were engineered, some brilliantly, to manage stable, high-volume production…,” but, in a rapidly changing world, these approaches “can leave companies dangerously exposed.”

 

The reality is, McKinsey observes, that “the world is changing rapidly…. [and] that in turn will almost certainly lead to much higher levels of volatility in demand and supply, and greater levels of supply chain complexity than most of us have known to date. It makes perfect sense to argue that most supply chains as currently constructed are not well-suited to this new environment.” [1]

 

The Future is now!

Writing in their outstanding new book, Demand Driven Material Requirements Planning (DDMRP), Carol Ptak and Chad Smith [2] remind us that we are already in the new normal. The future is now!

 

In the new normal:

  • Experienced planning and purchasing personnel are very well aware that if they simply follow the recommendations of their traditional MRP systems, they will wind up in big trouble. Both shortages, on the one hand, and inventory excesses, on the other, will grow. Expediting will escalate. These supply chain professionals recognize that if they continue to use traditional practices, they will find themselves in a no-win situation.
  • For the Internet-empowered consumer, tolerance times have dramatically decreased, and supply chains must accelerate to keep up—or perish.
  • Product variety has increased dramatically. SKU intensity has risen. What used to be one kind of toothpaste has become dozens. Where companies used to be able to stock ‘styles’ of watches, they must now stock styles by color. Even cellular phones now come in different colors.
  • The regulatory environment has grown more demanding and complex. Consumer safety and environmental regulations have proliferated in the U.S. and abroad.

This new normal is today’s world, not tomorrow’s.

 

Complacency leads only to backsliding and failure

If your executive and management team is not already in the process of seeking out new, fresh and innovative ways to meet these challenges, then as McKinsey has already stated, your supply chain may be “dangerously exposed.”

 

If you are not moving forward, you’re backsliding. It is likely that your competitors will be—or, are already—taking over more and more of your market.

 

In the new normal, your ability to effectively guide your day-to-day supply chain decision-making in ways that you know assuredly will have a positive effect on your bottom-line, means everything. Traditional approaches have proven themselves ineffective at accomplishing this.

 

While the C-suite is busy watching the scoreboard (the financial results), only a handful have found effective ways to manage the “play-by-play” so that they have absolute assurance that the actions taken will lead to improvements reflected on the bottom-line.

 

We are doing our best to help our clients every day to move in this direction. Our fresh insights are helping our customers become truly demand-driven. This is critical to improving the only two metrics that reflect the performance of the whole supply chain:

  1. On-time performance, and
  2. Return on investment

 

If these two crucial metrics are not consistently improving, chances are you need help.

 

We would like to hear how you are achieving ongoing improvement in your company and supply chain. Leave your comments below, or feel free to contact us directly.

 

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[1] Gilmore, Dan. "Rebuilding Supply Chains for the Future." Supply Chain Digest. April 8, 2011. Accessed December 30, 2016. http://www.scdigest.com/assets/FirstThoughts/11-04-08.php.

[2] Ptak, Carol A., and Chad Smith. Demand Driven Material Requirements Planning (DDMRP). South Norwalk: Industrial Press, 2016.

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Melissa Clow, Social Media and Public Relations Manager at Kinaxis, has adapted slightly the Gartner five stages of supply chain visibility.Kinaxis 5 Stages of SCVisibility.png

 

Kinaxis identifies these five stages as

  1. Departmental: The horizon of supply chain visibility is typically limited to walls of the department (e.g., sales, purchasing, production, and logistics). The data are shared between departments mostly in reports, emails or other on-demand exchanges.
  2. Functional: Supply chain visibility extends to functions, where these functions may cross departmental boundaries. For example, the function of “distribution” may include participants from sales, purchasing, warehousing, and logistics. Data deemed to be pertinent are made available to all participants in the function across departmental boundaries.
  3. Enterprise supply chain: At this level, a concerted effort is made to identify and share relevant supply chain data across the enterprise for both sales and operational planning and execution purposes. Transactions with external trading partners remain as arms-length exchanges.
  4. Multi-enterprise supply chain: A subset of what is considered relevant supply chain data begin to be shared outside the four walls of the enterprise. Efforts to collaborate with key trading partners are undertaken.
  5. Multi-enterprise networking: Concerted efforts are begun to create near real-time exchanges of relevant data with supply chain trading partners. This typically involves a significant investment in both IT (information technologies) and data analytics.

 

NOTE: The descriptions of each phase (above) are mine, not Kinaxis’.

 

Key challenges for SME supply chain managers and executives

Most of the SMEs (small to mid-sized enterprises) which become our clients are somewhere in the midst of stages 1, 2 or 3. The smaller the enterprise, the more likely they are to be stuck in stages 1 or 2.

 

Sometimes (perhaps, many times) the executives and managers do not even have the sense that there is any compelling need move beyond where they are today.

 

No road map

Most of the executives and managers at our SME clients begin from a position where they have no road map for moving from their current stage of very limited supply chain visibility, to the next level.

 

More importantly, when they read what the industry is saying about SCV (supply chain visibility), they are overwhelmed with descriptions calling for building linkages intended to exchange huge volumes of data across their enterprise (internally) and with trading partners outside the organization in the future.

 

I really cannot blame them for shrinking back from such a daunting task—especially if the payoff for the effort remains unclear.

 

Strange new territory

To the SME executives and managers, taking action to move the enterprise into the next stage of supply chain visibility must seem like a move into strange new territory.

 

Many times they are simply unprepared for such a move. Taking the next step to extend SCV—especially if it means extending it outside the four walls of the enterprise—requires new thoughtware regarding technologies, their effective application and use, and the forging of innovative new relationships with key trading partners.

 

Our job, as consultants, begins with introducing these SME executives and managers to new thoughtware.

 

Trading partner trust relationships

The technological hurdles are, today, easily overcome for sensible and effective supply chain visibility. On the other hand, the trading partner trust relationships that open the door for exchanging the data that lead to sensible and effective SCV are frequently much harder to achieve.

 

We wholeheartedly agree!

 

Whether you are the sender or the recipient of supply chain data in an extended SCV environment, if you are being called upon to provide or consume dozens of different data types (e.g., SKUs, forecasts, purchase orders, production orders, sales orders, inventories, shipments, and so forth) that may amount to millions of rows of data, you are justifiably skeptical.

 

Trust, of course, is a significant concern. But, what about just plain information overload? How will you—or, they—be able to effectively sort out what is relevant information from the noise in such a huge flow of data?

 

Building on a simplified data framework

We believe that, at the outset, effective supply chain visibility can be achieved between trading partners through the exchange of a very much simplified data set. (We have articulated this simplified data set elsewhere.)

 

If you believe that extended supply chain visibility could help your company if a way can be devised to make it both simple and effective, then we urge you to investigate further.

 

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What are your feelings about extended supply chain visibility? At what stage is your business today? Where do you think you need to be to stay profitable in 2020?

 

Please leave your comments below. Or, if you prefer, please feel free to contact us directly. We look forward to hearing from you soon.

 

 

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Someone recently said something along these lines: “When it comes to delivering on your promises to customers, the quality of the information you use in managing your supply chain management is key.” [Emphasis added.]SCM ForecastAccuracyCurve_chart.jpg

 

Meanwhile, folks like Herb Kleinberger of PricewaterhouseCoopers are saying, “Everyone is guessing along the supply chain as to how much to make and ship. And they’re all guessing in separate ways…, so everyone builds in extra safety stock to buffer forecasting errors.”

 

Going way out on a limb

I’m going to go way out on a limb here to state what I think should be supply chain axiom:

Guesses—no matter how they are generated (by humans or by machines) are of lower quality, on the information quality scale, than are data on actual demand

 

Moving at the pace of actual demand

Now, I will grant you that most supply chains do not have the luxury—or, even, possibility—of being able to make-to-order (MTO). The customer tolerance for delivery is far too short when compared to the time to produce the goods required.

 

However, that should not stop them from producing good based on the pace of actual demand as reflected by the condition of strategically sized and place buffers.

 

Most buffers in a demand-driven supply chain will be stock buffers consisting of a specific, dynamically managed, quantity of goods stocked at a specific location in the supply chains.

However, other buffers that can be used to manage and monitor supply chain execution might be capacity buffers or time buffers. Each has its proper place.

 

Forecasting (guessing), too, has its place in demand-driven

There’s a place for forecasting (guessing), too.

 

Forecasting in demand-driven supply chains should be used

  1. For planned adjustments to buffers based on known or anticipated upcoming changes in supply or demand (e.g., seasonality, new product introductions, product end-of-life, new distribution channels coming on-line)
  2. For capacity planning (e.g., expanding or contracting to the workforce as needed; adding facilities or equipment)

 

If the forecast (guess) is approximately right in these scenarios, you should still be in an okay condition.

 

Why so much firefighting?

Why do you think supply chain participants spend so much of their time, energy and money in acts of firefighting?

 

The answer is really, in my opinion, quite simple and two-fold:

  1. Their buffers (i.e., stock, time and capacity) are not strategically designed and placed in their supply chains
  2. They rely on guesses (forecasts) for execution, so they end up consuming capacities building and shipping things that will not get sold, while things that are in demand cannot be built and shipped on-time

 

It doesn’t have to be that way. We can help.

 

Let us hear your thoughts on these matters. Leave your comments below. Or, if you prefer, please feel free to contact us directly.

 

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Recently, I read a brief but fascinating article about Satya Nadella, CEO of Microsoft.Nadella_Satya_Microsoft.jpg

 

Nadella was born in Hyderabad, India, in 1967. He had been a rising star at Microsoft for a number of years before being named CEO of the firm in February of 2014.

 

Very soon after being confirmed as CEO, Nadella sent out a brief email to all of the employees of Microsoft. He was 46 years old at the time.

 

Here is the portion of Nadella’s email to Microsoft employees that really grabbed my attention:

 

Many who know me say I am… defined by my curiosity and thirst for learning. I buy more books than I can finish. I sign up for more online courses than I can complete. I fundamentally believe that if you are not learning new things, you stop doing great and useful things. So, family, curiosity and hunger for knowledge all define me.

 

Great and useful things

Under Nadella’s management, Microsoft has certainly taken new directions. He has done things that no one would have suspected Microsoft would ever do.

 

Consider that Nadella has found ways to turn Apple, Google, Linux and other full-time rivals in to (at least) part-time partners. Microsoft Office now runs on the iPad, and Microsoft SQL Server now runs on Linux.

 

Nadella’s new thinking has changed fortress Microsoft into collaborative Microsoft. By leaving “productivity” undefined (it’s whatever you want to accomplish) and embracing a cloud that is bigger than Microsoft, Nadella is helping to make the pie bigger for everyone.

 

From a personal point of view, I was pleasantly surprised that my Windows 10 cellphone and desktop are fully integrated via the cloud. If I miss a phone call on my cellphone, I get a notice on my Windows 10 desktop. If the battery is low on my cellphone, I get a notice on my Windows 10 desktop. If I tell Cortana (Windows 10 digital assistant) that I want to be reminded of something, the reminder shows up both on my cellphone and my desktop. My contacts and email are also fully synchronized and integrated without effort.

 

And, what about results? I hear you ask: By late 2016, Microsoft stock had hit its first new all-time high since 1999.

 

Okay. Enough about all that. Here’s the point I really wanted to get to, however.

 

If you are not learning new things…

In my day to day work as a business and supply chain consultant, I am constantly amazed and (frequently) frustrated by folks who are asking me to help them get the MRP, MRPII, or ERP systems to “work better” so that they can manage their supply chains more effectively and more profitably.

 

When I explain to them that the core logic employed by MRP, MRPII and ERP systems today with regard to inventory and supply chain management is logic that evolved in the 1950s, the give me (mostly) blank stares.

 

When I tell them that this 1950s-version logic was encoded into MRP, MRPII and ERP systems without any substantial changes during the 1980s and 1990s, they give me a “so what?” look.

 

When I tell them that today—nearly 70 years later—this same logic prevails in MRP and ERP systems with price tags ranging from several thousands of dollars to more than $1 million, they don’t seem to comprehend what I am saying.

 

The next conversation seems invariably to begin with, “Yes, but, can you get our MRP, MRPII or ERP system to help us manage our inventory and supply chain more effectively and more profitably?”

 

I tell them:

“What you need is new thoughtware! While we can tweak and get some improvements out of your traditional MRP, MRPII or ERP systems, the fact of the matter is, you need new ways of thinking. The days are long past when traditional MRP could be effective for most supply chains. It was designed and built for an entirely different world and a different age.”

 

We don’t want our customers to stop doing great and useful things simply because they have stopped learning new things.

 

Our goal is to introduce them to innovative new concepts that have proven to be successful in enterprises of all sizes—from mom-and-pop operations to multi-national corporations and divisions.

 

Please…

 

Be like Satya Nadella. Never stop learning; and never stop doing great and useful things!

 

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CITATION:

Weinberger, Matt. "The Rise of Satya Nadella, the Game-Changing CEO of Microsoft." Business Insider. December 26, 2016. Accessed December 27, 2016. http://www.businessinsider.com/satya-nadella-the-rise-of-microsoft-ceo-2016-11.

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End-to-end supply chain visibility (E2ESCV) seems like a great idea! Even I have been an advocate of the concept.SupplyChainDataComplexity.png

 

Clearly, there are significant advantages in E2ESCV for today’s extended and geographically-distributed supply chains. E2ESCV dramatically improves the opportunities for collaboration between the trading partners, while reducing risk and, hopefully, increasing the flow of relevant materials across the supply chain.

 

But, let’s get real—shall we?

When supply chain thought-leaders talk about E2ESCV, and then create lists (like the following) of the data that should be a part of E2ESCV, it seems like an insurmountable hurdle:

  1. STRUCTURED DATA
    1. Materials
      1. Products (finished goods)
      2. Components (raw materials and subcomponents)
    2. Forecasts
    3. Orders
      1. Purchase orders
      2. Production orders
      3. Sales orders
    4. Inventories
    5. Shipments
      1. Inbound
      2. Outbound
    6. Trade documents
    7. Assets
    8. Quality
    9. Waste
  2. UNSTRUCTURED DATA
    1. Social media data
      1. Images
      2. Video
      3. Text
      4. Other content
    2. Public data
      1. Weather
      2. Traffic
      3. Political affairs
      4. Statistical
      5. Other

It’s no wonder that most (virtually, all) of the small to mid-sized business enterprises (SMEs) with whom we work have no road map for moving to the next level.

 

A high mountain in strange territory

If our SME customers give any thought at all to E2ESCV—as a “dream,” perhaps—it probably seems to them like a high mountain in strange territory. They probably consider their likelihood of achieving E2ESCV about the same as their going to Nepal and conquering Mount Everest.

 

First of all, they do not believe it is possible to create a trust relationship strong enough with most of their trading partners—on either end of their supply chains—to enable the open sharing of that much data.DDMRP BufferStatusBoard.png

 

Second, the resources and costs that might be involved in creating (or, acquiring) the IT infrastructure to securely manage the exchange of such a huge volume of structured data are simply out-of-sight for the vast majority of SMEs.

 

Third, if they were to give to, and receive from, their supply chain trading partners such a tremendous volume of data, they are not even sure what they would, or could, do with it. They fear that it simply lead to information overload. (Most of them already have so much data available internally that they are already having trouble distinguishing what is relevant information from what is irrelevant.

 

Given just these three factors (above), the whole concept of E2ESCV seems so far out of reach that even giving much time to contemplate it seems wasteful.

 

But, we believe there is hope!

 

Inherent simplicity to the rescue

Suppose—just suppose—that supply chain trading partners could go a long, long ways toward E2ESCV by trading just a very small data set. A data set that would not, generally, be create a huge trust barrier to its exchange with supply chain trading partners.

 

Suppose that this small data set would provide all of the essentials necessary for the upstream or downstream trading partners to make decisions and set timely and accurate priorities for actions to sustain the flow of relevant materials across the supply chain.

 

We believe this is possible—especially as a first step that is easily within reach of most SME supply chain participants.

 

Four core data points

We envision the exchange of four (4) core data points between trading partners:

  1. SKU-Location (SKUL, or stock-keeping unit by location)
  2. Current Buffer Status Percent (percent of buffer remaining)
  3. Current Buffer Status Zone (a simple RED/YELLOW/GREEN color code)
  4. Current Calculated Replenishment Quantity

 

These data points would already incorporate (from the sender) the following factors:

  • Open replenishment orders
  • Open demand orders due now or past-due
  • Open demand spikes (open orders that are considered “spikes” by rule and are within the “spike horizon”)*
  • Planned Adjustment Factors (for seasonal, promotional, or other identified and anticipated changes in demand)

 

These are all relevant data points, and can be employed by the recipient trading partner (let us assume, in this example, that the recipient is the supplier of these SKULs) to calculate their own “buffer status” for the SKUs they are to supply.

 

Even if the currently calculated replenishment quantity is not yet a firm order, the supplier can use that number to determine whether or not that quantity—if confirmed as an order today—would be a “spike,” or if it can be satisfied within the normal lead-time arrangements with the customer.

 

This seems within reach

The exchange of four simple data points as the beginning of E2ESCV suddenly seems to be within reach!

 

This isn’t Mount Everest! This is the hill at the edge of town! This doesn’t require an exotic trip to Nepal! This requires knocking on a few doors to talk with the CEOs at a few key vendors and customers!

 

We believe that SMEs—like our customers—can start building on this inherently simple data framework. This framework requires a minimum of data visibility to be effective, and a trust level between trading partners that is within reach, as well.

 

 

How are you moving toward E2ESCV? Have you been stymied by what seemed like Mount Everest and a trip to Nepal? Let us know.

 

Leave your comments below, or feel free to contact us directly with your questions or comments.

 

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NOTES:

* For more information on “spike” demand and how to use the calculation effectively, please contact us.

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There are really five basic—and essential—steps to moving from wherever your supply chain stands today to becoming truly demand-driven. They may be summarized as follows:

 

BuildingDDSupplyChhains2.png

1. Strategic Inventory Positioning

Sadly, far too many supply chain executives and managers are ill-equipped to deal with this first and, probably, most important matter.

Frequently, if the question of inventory positioning is asked at all, it is answered from a purely pragmatic point of view. Strategy seldom enters into the equation.

 

Yet, the strategic positioning of inventory is the most important matter to be addressed when seeking to maximize return on investment for your supply chain inventory dollars.

 

2. Strategic Buffer Profiles and Levels

The strategic sizing of buffers in also crucial to achieving the highest return on investment from your supply chain dollar.

 

Too little inventory (undersized buffers) lead to high costs due to

  1. Stock-outs and lost sales
  2. Lost customers
  3. Increased sales and marketing expenses to replace lost sales and lost customers
  4. High expediting expenses
  5. Nearly constant firefighting
  6. Low morale and higher employee turnover rates

 

Too much inventory and expenses increase due to

  1. Obsolescence
  2. Write-offs and write-downs due to excess stock handling and movement
  3. Low margin liquidations
  4. Cannibalization of new product sales
  5. Excess warehousing expenses
  6. Expenses related to required warehouse expansions or lease of additional storage facilities

3. Dynamic Buffer Management

Today’s supply chains are subject high levels of volatility. Therefore, to be effective, buffer sizes must dynamically managed to accommodate changes in market conditions, supplier performance, or other factors.

 

Many of these factors must be sensed and are not known until after-the-fact. But, other factors may be known in advance and controlled by business decisions like market promotions, or the opening or closing of new product outlets.

 

We no longer recommend that firms managing more than 500 SKU-locations try to maintain their inventory buffer sizes manually, as this is increasingly a recipe for ongoing troubles.

 

4. Demand-Driven Planning

Demand-driven planning shifts the focus from unreliable—read: always wrong—forecasts to planning based on highly reliable signals coming from stock, time and capacity buffers.

Please note that this does not mean that we move our clients to a make-to-order environment. That is simply not feasible in many—even, most—circumstances.

 

However, it does mean that our clients using demand-driven planning methods have access to relevant information necessary for creating, maintaining, promoting and protecting the FLOW of relevant materials across their supply chains.

 

5. Highly Visible and Collaborative Execution

By implementing buffer status and synchronization alerts—accompanied by proper training—demand-driven supply chain executives and managers find they are overseeing operations where the FLOW of relevant information is constantly supporting and promoting the FLOW of relevant materials up and down their supply chains.

 

Those involved in the collaborative execution all agree with the meaning of the signals and the priorities set by the signals. Gone are the days of arguing, haggling and compromise only to get the best of the worst solutions, or the worst of the best outcomes.

 

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These five steps—when effectively and conscientiously applied—have demonstrated their ability to deliver dramatic results in as little as twelve weeks following implementation.

 

If you would like to learn more about becoming truly demand driven, read: DDMRP – Demand Driven Material Requirements Planning by Carol Ptak and Chad Smith.

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What are you doing to become demand driven? How successful have you been?

 

Please leave your comments below, or feel free to contact us directly, if you prefer.

 

 

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