The Intimate Supply Chain - Part 1

Supply Chain Management Review magazine has a new article titled The Intimate Supply Chain. Writes David F. Ross in the teaser:

After all the excess inventory and nonproductive processes have been removed, what's the next stage of supply chain advancement? This article contends that it lies in the creation of “intimate” supply chains. Intimate supply chains create value for customers at every touch point. And by doing so, they enable companies and their channel network partners to do business in a profoundly different way from the competition.

A little later in the article, David recounts the words of supply chain pioneer Arch W. Shaw writing in 1915:

Writing in 1915, supply chain pioneer Arch W. Shaw described distribution as composed of two separate yet interconnected functions: demand creation and physical supply. Demand creation, Shaw wrote, consists in communicating the value to be found in products and services that meet the desires and needs of the customer. However, the customer's willingness to expend the effort to make an acquisition would possess no economic value if these goods and services were not available at the time, place, and cost wanted. It is distribution's role to solve this basic problem of creating exchange value by ensuring that the flow of the output of production matches the customer's requirement as efficiently and as quickly as possible. Shaw felt that finding a solution “was the most pressing problem of the business man today.”

The first thought that crossed my mind when I read the above words - that's the very question that Lean and perhaps a whole slew of improvement methodologies seek to address.
But David Ross is introducing something more and he sets the stage for that introduction in the following way:

Until now, companies have sought to compete by constructing supply chain models that leverage lean manufacturing and supply-side management. They have deployed agile and flexible assets and information technologies in the pursuit of supply-channel networks capable of supercharging everything from product development to fulfillment. And all the while they have searched relentlessly for cost reductions.

And further more,

But while such initiatives have yielded sometimes dazzling advances in productivity and marketplace responsiveness, they are rapidly becoming insufficient in the face of globalization and the mass-consumption strategies of market leaders like Wal-Mart and Dell. In order to succeed against global competitors that can offer high-quality products at the lowest cost, companies must go beyond the traditional approaches to improving the business. But after they have removed the waste and streamlined the supply chains to minimize costs, what's next?

What's next? More of the same - that was my first answer. Before, I get into David's solution for the current general operating environment, I want to look at whether "More of the same" as described above needs to be superseeded. Remember that David began with the excerpt - After all the excess inventory and nonproductive process have been removed... How does that insight square cohere with the era of globalization? It simply doesn't. In this first wave of globalization (both global sourcing and global markets), inventories have not decreased - they can't decrease unless they truly adopted lean techniques. How? In very general terms, the following table shows the types of inventory that can be found in the supply chain:

Inventory Type	Mass production	Lean production
Raw Material
Work in Process (WIP)
Finished Goods
Pipeline

I have described the two contrasting philosophies in extreme terms purely for the purpose of clarity and not because firms actually compete in reality in such neat categories. Lean and mass production approach globalization in different ways. Mass production (driven in large part at driving down cost per unit) in the globalization age will incur inventory in the stages described above and that doesn't change if the firm is located in the US or in a foreign location. If the firm is a US firm located offshore carrying out manufacturing for markets in the developed world or a foreign firm located offshore producing again for markets in the developed world, the inventory carried by both firms would be largely along the lines described in the Mass production criteria. In the lean scenario, regardless of whether the firm is US based or foreign based, the idea would be to get closer to the customer and therefore the means of production would be situated accordingly. Let me suppose the that the described competition: In order to succeed against global competitors that can offer high-quality products at the lowest cost, companies must go beyond the traditional approaches to improving the business. But after they have removed the waste and streamlined the supply chains to minimize costs, what's next? is really between US based firms that are situated in the US engaged in global sourcing but local manufacturing competing with a foreign firm located in a foreign location sourcing locally but producing for foreign markets. The competitive advantage is enjoyed by the foreign firm on account of lower costs of production. However, the foreign firm has to sacrifice agility and flexibility because the pipeline (i.e. shipping from a foreign market to the developed market) is quite long. Moreover, on account of being situated close to the market, the US firm enjoys the advantage of responding to the customer's needs quickly (the typical lean advantage of being situated close to the market).

So given that background, I'll take a look at intimate supply chains in the next post.

Tags: Lean, Intimate Supply Chain, Supply Chain Management, Globalization, Mass manufacturing, Supply Chain

posted by AJ @ 5:18 PM 0 comments

Achieving Continuous Improvement in Complex Supply Chains Today - Part 2

In Part 1 of Achieving Continuous Improvement in Complex Supply Chains Today, I reviewed Robert Bowman's article in GLCS "Achieving Continuous Improvement in Complex Supply Chains Today" and took a closer look at the P&G example cited there. In this post, I intend to focus on the application of Business Intelligence and its role in continuous improvement.
Robert brings up the notion of Managing by Dashboard in the latter half of the article. He introduces the following:

A crucial element of any such technology is the executive dashboard, software which allows managers to monitor at a glance a series of key performance indicators (KPIs). HighJump has built some 500 screens into its products, although each customer utilizes no more than a handful of measurements, based on its unique needs. The tool gives users the data needed to pursue continuous improvement.

If one refers to the age old diagram of a supply chain's structure, one would find product flow as well as information flow (typically in the reverse direction). Even with such an explicit definition of the importance of information flows and awareness of the importance of data within a firm, my experience in Supply Chain consulting shows that data about even the simplest transactions within a firm are mangled in ways that might drive horror into Frankenstein's cold living heart. The one piece of data that is never mangled though is payroll. Ah! if only?
Robert alludes to that by writing:

Dashboards are only as good as the data they contain. The first step, then, is to set up a database that can act as the single point of storage for all relevant information generated by a company and its trading partners. In addition, the database must be scalable to accommodate rapid growth in sales, says Brad Fellows, senior partner of transportation, logistics and distribution with Teradata in Dayton, Ohio.

True enough, dashboards are only as good as the data contained therein. However, the very notion of a scalable database is database theory not business reality. Instead, I think a scalable database should be called businessable database meaning that business analysts must not only scale their databases as they see fit but must be measured on the quality of the data they maintain and be assessed on the contribution that such data has on decision making. The most common notion that I find when decision making from "terrible" data is concerned is the notion of directionally correct or good enough for government work. That notion betrays a certain innocence when it comes to the quality of government data and government work. Nevertheless, upon this beacon of data reliability (or unreliability as the case may be), an intelligence layer is grafted:

Just above the database layer is a piece of business intelligence software called Supply Chain Intelligence (SCI). It can conduct basic analyses as well as complex, predictive routines.

An important step has been forgotten. Its an engineering hangup. When it comes to important things, engineers don't trust themselves with their own design. Even with generous design factors applied generously across the design at hand, engineers feel the need to add one more layer into the mix - multiple redundancies - the ultimate "What if shit happens?" safeguard. Analogously, any attempt at creating a business intelligence layer ought to cull insights and reports from multiple data streams and compile results that can be independently verified from different angles. One of those angles is for the business layer to check against a set of normal expectations when it comes to data integrity.

Of course, merely having the data doesn't mean a company knows what to do with it. Managers must ensure that KPIs are monitored and measured on a routine basis, says Michael LaRoche, supply chain strategy practice leader with IBM Consulting Services.

You would not believe how true the above statement often is. (Multiple hat tips to Robert Bowman). Too often, data sits within multiple databases and excel spreadsheets with nary a medium to make it to the decision maker. Thus, often times, decision makers are only directionally correct and worse still some of them make it a matter of honor that they have taken important decisions under such duress.
An important point to note:

The campaign must also be extended to external supply chain partners, such as suppliers, carriers and distributors. But cooperation should never be assumed, says LaRoche. The company has to make the case for collaboration. Would-be partners must possess what he calls "the four Cs": compatibility, with each side deriving benefits from the relationship; commitment on the part of all senior managers; the capability of both sides to make use of the data provided; and control, with the role of each party in making key decisions clearly delineated.

Continuous improvement, whether they be of the Kaizen, Lean, Six Sigma or any other variety depends a great deal on assessing the current situation i.e. understanding reality. To that end, collecting, organizing and disseminating accurate data about the current state is critical. My opinion about the dismal state of data affairs within firms today is that it is insufficient to be directionally correct. Instead, create an appropriate sample of the dataset with parameters set and defined by the investigator himself and go about collecting the data if one cannot trust the data in the system.

Tags: Continuous Improvement, Lean, Business Intelligence, Supply Chain Management

posted by AJ @ 9:46 AM 0 comments