I interviewed Jon Kirkegaard who discussed The Untapped Potential of Supply Chain Solutions.
Can you first provide a brief background of yourself?
Sure, Dustin.First, a quick background of DCRA, Inc.We're a firm founded in 2000 focused on strategic supply chain solutions, including patented sales and operations planning technology in real time. Sales and operations planning as well as very discrete and very pragmatic consulting methodologies to create real economic value-add and ROI from applying supply chain concepts to broader business success. My background personally is kind of a lineage of starting from engineering school and mechanical and manufacturing engineering and spending a few years in industry supply chain work, migrating to Booz Allen and doing strategy and consulting, after getting a master's degree in finance.
Finding supply chain approaches is a great way to drive value-add. Traditional consulting would get bogged down in politics. Our approach basically that revolves around finding ways to see where real financial flows take place. I started DCRA to focus on real solutions, not just technology and not just management consulting,kind of the best of both. Recently in the last few years, we've created an operating division that applies our own solutions to remanufacturing classic cars and classic car parts and shipping them, building to order all over the world.
Can you talk about the state of supply chain solutions technology and compare that versus what is possible?
Thanks, that's a great question, and it's one that I think about all of the time, and to quite honestly I guess I have real high expectations of what can be accomplished using a great supply chain strategy that really drives and runs adjacent to or even in front business strategy, in a way. I've personally been pretty disappointed since 2000, 2001, that the application of technology hasn't really focused on the root opportunity of flowing inventory, building more things to order, of mass customization of product, creating jobs. It seems like it's been stuck in silos of ERP type of dedicated technology, and quite honestly, just too much of a genericization of the term supply chain. It almost doesn't mean anything more.
I tend to focus more on sales and operations planning, and can I make what I sell? Can I sell what I make? And creating the real balance of flow of goods and minimum consumption of working capital and high cash flow. So speaking of supply chain in terms of real financial gains, not functional — Can I store more things in a warehouse? Can I take orders across multiple systems? But really, looking at supply chain strategy as a way to sell more with less exposure, less risk and less capital.
Can you elaborate on what you mean by inventory?
The flow of inventory, the measurement of inventory, both on hand inventory and other people's inventory and what I call future inventory, mass production schedules and to be produced inventory and goods, I think really tells the story of the health of a business and the effectiveness of a business far better, far earlier, than financials. It is solely underused in designing a business, measuring of businesses...and I would love to see it more exploited.
Therefore, supply chain solutions that focus on as such, which I think that the best example of that is sales and operations planning which is trying to look at current inventory in transit, other people's inventory, mass production schedules and then demand and how show you shape demand based on lead time supply. Lead time and price, I think, is really the healthiest strategy that companies can take on.
It's not a software solution, which is I think is where people get confused. It's really a solution that uses all sorts of enabling technologies to cut the cycle time and improve it. But to make my point about inventory as clear as I can, I had a couple interesting insights over the decades, trying to solve clients’ problems. Starting with a professor in engineering school who was one of the leading work methods experts around the world and he came into class one day, and said, "Gentlemen and ladies, you're going to get thrown into a problem as young professionals.You're not going to know where to start. Start with the inventory,” because it's going to tell you what's happening in truth beyond what is said, what is tribal knowledge, and it's going to get to the truth of what's really going on whether it's a plant or whatever.
Then along comes my work and Booz Allen strategy and supply chain. Supply chain is really looking at flows of inventory across enterprises and how its consumed and how it’s made. The measurement of that is really what drives truth and value much better than gap financials, IFRS financials, or even cost accounting type financials. Another example of that is when I was at Booz Allen I worked a lot with Manugistics on other days and was one of references to the public, and I spent some time with Bill Gibson talking late at night time, implementations and asked him what time what inspired him as far as Manugistics, and he said he'd seen a lot of distortion of financials in companies, but what he found was that it was really hard if not impossible to distort the measurement of inventory, and therefore if you focus on where inventory you could really get to the heart of the problem and solve things.
So now we flash forward to 2016 and in reference back to your first question on what is my perspective on the state supply chain technology and supply chain solutions...I'm personally very disappointed because the technology leaders, the business leaders, the customers asking for what they need haven't really driven out what I think they really should be asking for, which is how to make inventory transparent no matter where it sits. Because today, inventory sits across enterprises more like enterprises, more like if we were going to book an airline flight to London tomorrow.
When you made a phone call on the internet, it looked at what inventory levels were last year this time and you should be able to show up and get a seat on the flight. The way airline systems really work is they have peering asynchronous systems that look like synchronous real time systems that tell you up to the second of what availability is and the system's price inventory, generally higher and higher as less of it's available.
In today's world, whether you're selling auto parts or you're distributing furniture or your retail goods or you're a chemical plant with polystyrene and rail cars, there's really no transparency of inventory between enterprises. There's some latent ways that shared the EDI, there are some efforts to share inventory, but the lack of that inventory being available to examine on a pricing model, on available to promise perspective is really sad.
Compound that with, there's very little sharing of what I'd call future inventory or mass production schedules, so in short to answer your question, I think the future of inventory and supply chain solutions will be to make that inventory widely available at different levels of security based on who you are and what's your relationship with the enterprise.And one way that will happen is through pricing, whereas potentially for many goods pricing will be lower if you can plan ahead. So if I can plan six months ahead that I need a new mattress for my house, I get a better price than if I walk in to the room store tomorrow and buy one off the shelf.
That makes total sense, if you're a manufacturer and you've ever tried to plan production and slot assets and capacity and plan for workforces in the future. So those are some snippets in what I think should happen, and quite honestly I'm sure it will happen, I've been doing this long enough what will happen but never good enough to know when the market will be smart enough to move aggressively with their own interests.
What about assemblies? Can you talk about what you mean by assemblies?
Well, I have done some philanthropic work with the State of Texas and the department of commerce and some other workforce boards and being asked to use supply chain knowledge and design to help create jobs and US competitiveness and North American competitiveness. I guess my answer will revolve around a tactical application of my last answers to the questions, the last answer. And this question is I think there could be a lot to gain by many products and many firms adopting what I call assembly coordination strategies in their supply chain. Whether it's a postponed manufacturing concept or it's just importing key components of a finished good and then assembling to order or assembling to various markets.
I think there's a lot of wins for everybody involved. There are wins for the company because it dramatically reduces working capital and greatly increase the varieties and different customizations of the product. There are wins for government because it can create protection of intellectual property and reduce stress on courts and size of transportation networks. But what I find most opportunistic is it could be extremely beneficial for workforces, where when goods are sent off via design to be made in far off lands, there's a middle ground of making it, assembling it, that gets lost, which is a big feedback loop to design, and it creates lots of jobs.
There are lots of opportunities for people who can start with value-add assembly manufacturing jobs that can move into more important roles as they apply themselves, but if you lose that middle ground you lose the opportunity for those that they don't get the privilege of getting an engineering degree or some advanced degree to participate in manufacturing in a meaningful way, and therefore the GDP.
So I think my answer is applying the sales and operations planning concept, having a component of your fulfillment strategy where you don't try to predict how many DSL modems or cable modems can be made in red versus blue, but you keep the components and then change the case based on the order. As one example, we did that kind of strategy for a big client, can be very simple in concept, but have profound impacts on financials, on the workforce, on a lot of the topics that we hear in the news today. I think it's a real applied concept that I think can do a lot for just about any industry. Even process industries generally will put their goods in a package, and that packaging approach or that packaging step generally is the constraint, the Herbie, if you've read the book "The Goal," that bottlenecks a lot of their manufacturing flow. Go ahead.
What does the future hold?
Well I think I touched on a bit of that in the last few questions, but I'll come back and summarize it and try to tell what I try to tell you and see if it makes sense. I think the future is somewhere along the line, supply chain technology will be as effective as Google is for doing a search. We did this 10, 12 years ago. We patented real time cells and operations planning that works much like Google to go out and find pools of inventory, pools of production...order similarities and aggregate that information in a less precise but more accurate way, and then as you become more and more communicative and common X amount or JSPs or whatever your communication form is with your network it becomes more and more precise.
It doesn't take a genius to say there's got to be something that's going to be a breakthrough in multi-enterprise technology, which works more like how Google works and less like looking down rifle barrels of discrete single enterprise information. Who knows what happens first? Is it the application that uses that information that drives the sharing of the data?Or is it the sharing of the data that drives the applications? We'll personally believe and put our money where our mouth was. 2003, 2004 to 2008 we invested heavily in these patents and applications that make the data more transparent and visible. And we quite honestly thought by now most companies would have their supply chain execution [inaudible 00:12:00] that would be available for themselves, and they can turn on and off firewalls to share with their trading partners and share what they want to share with the extended enterprise to make sales happen. We call this application order commit.
In our experience in trying to help clients turn around businesses and improve businesses, we found that there's always resistance. The least resistance is when you can say it can serve the customer better. You can say to leadership that you will help create the incremental order, which creates incremental ROA on the assets that are already spent. So, I believe that that is the future.
I'm in almost disbelief that in the last ten years we haven't seen the explosion of the application of these concepts to multi-enterprise manufacturing, GDP inventory, mass customization and building of things. We've seen an explosion of this kind of technology to sharing pet videos on social networks, and I can almost assure you that the impact on GDP of applying this thinking to supply chain is the most impactful thing to GDP that could happen, and it's going to happen. Why it hasn't happened, you could probably spend hours debating who's interest it's been to stay in the status...I personally believe that gap accounting and IFRS accounting are as much of the problem as the solution.
There's so much pressure for financial control that systems developers build systems around control, not around revenue and flow of inventory and serving the customer.But there are phenomenal exceptions, and so I think future can be seen and really if you dig down deep of the market leaders in probably every industry from Amazon to Wal-Mart to how Coach handbags to how Dell Computers are sold...I think you'll see in almost every SIC code that the leaders in those industries have created systems that work out front of the gap accounting and the ERP systems to drive behavior and culture around these concepts.
All of the varying degrees and all are still just marginally better than their competitors, but just a small margin — two to three percent better at this than your competitors— can mean enormous gains in profitability and market share. I think if you study the facts today, I think you find that the future is here. The future is being practiced, but it's still, I think, held as a close competitive trade secret by these firms. That's a lot of what our firm has been and focused on, is bringing those concepts down to small and medium businesses and businesses of all sizes because, quite honestly, we believe that the leverage of these concepts is actually easier as a small business than a larger business.
About Jon Kirkegaard
President founder DCRA Inc.
Supply Chain Solutions & Select Classics DCRA's Automotive Manufacturing Division