Monthly Archives: July 2011

There’s More To Risk Than Natural Disasters

As per this recent article in Industry Week on how “manufacturers must brace for global uncertainty and risk”, the following, entirely predictable, events can be just as devastating to an organization’s supply chain if not planned for.

  • Rapid Growth
    What if sales double overnight? Can the supply chain keep up?
  • Facility Expansion / Opening
    Can the organization ramp up supply, staff, and logistics fast enough to maintain productivity levels?
  • Massive Churn in Product Offerings
    If the organization has to continually offer new versions of products, or rapidly expand its product offerings, can the supply chain adapt quickly enough?
  • New Customers that Account for Double-Digit Percentage Volume
    Can the supply chain keep up? Can it provide any new services that will be required at the agreed upon service levels?
  • Substantial Changes in the Supplier Base
    If current suppliers go out of business, can new suppliers be incorporated into the supply chain fast enough? Will new suppliers be able to meet demand? If new suppliers enter the space, will the organization be able to identify them and take advantage of new technologies they offer?
  • New IT Systems
    A failed IT implementation can bring down a multi-billion dollar company. A poor IT implementation can cost millions and stop production in its tracks. It’s rare occurence when an IT system upgrade doesn’t result in at least some downtime. IT system implementations and upgrades need to be planned for carefully.

So, if your Supply Management organization is not yet thinking about risk on a daily basis, maybe it should be.

Can Your Supply Management Organization Spot Bad Strategy?

As per this recent article on “the perils of bad strategy”, a good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them. It embodies the hallmarks of Admiral Horatio Nelson’s victory against the French and Spanish armada in 1805 where, outnumbered and outgunned, he prevailed against the enemy fleet without losing a single ship.

In comparison, bad strategy, which is often without focus, accommodates a multitude of conflicting demands and interests. It covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values which are no substitute for hard work and good strategy. A good strategy is like a good brand. It makes an impact. It encourages a specific action, or set of actions, towards a specific goal. Stakeholders, customers, and market analysts love it or hate it. It is not another same-old, same-old slogan-based market statement that is heard today, forgotten tomorrow.

So how do you spot bad strategy? The McKinsey article on “the perils of bad strategy”, you look for the following hallmarks.

  • Failure to Face the Problem
    A strategy is a response to a challenge. There can be no strategy until the challenge is defined. If the real issue is not defined, the strategy will not work. For example, if labor relations are bad, new equipment will not improve productivity. If manufacturing costs are high, increasing sales will not increase profit margins.
  • Mistaking Goals for Strategy
    Audacious goals are great, but will never be achieved unless the company can identify a point of leverage to achieve that goal. An organization can only compete if it has a competitive advantage. It’s not just a push to succeed, it’s creating the conditions that will make the push effective.
  • Bad Strategic Objectives
    Strategic objectives cannot be fuzzy. They must be clearly defined. They can’t be blue sky. And they can’t be long lists of things to do. Good strategy works by focussing energy or resources on a select few pivotal objectives whose accomplishment should lead to a cascade of favourable outcomes. If the strategy doesn’t do this, it’s likely bad strategy.
  • Fluff
    If the strategy is nothing more than a restatement of the obvious, combined with a generous sprinkling of buzzwords, with no original thought, it’s bad strategy.

Your organization doesn’t have a bad strategy. It has a choice. Can your supply management organization make it?

Three Great Tips for Optimizing the Distribution Network

A recent article in Logistics Management on Warehouse and DC Management: 6 Tips for Optimizing the Distribution Network provided a number of great tips for optimizing the distribution network and reducing logistics costs which are expected to quickly surpass the 2008 high (on the US Freight Index) as oil prices increase and availability of qualified truck drivers decrease. The following three tips are particularly pertinent.

  • Ask the Right Questions
    What are the perceived service level requirements? What impacts will changes in delivery lead-time have on revenues in a given market? What are the baseline operating expenses, inventory assets, and capital investments? How do these compare to alternative scenarios? Should the company home-source, near-source, or global-source? Remember, Supply Management must deliver value and balance costs and lead times against revenues and demand times in its redesign.
  • Use an Effective Network Modeling Tool
    Effectively modeling a network in home-grown spreadsheets and databases is impossible for an average enterprise with more than half a dozen locations and global sourcing requirements. Not only does an organization have to effectively model a network and proposed alternatives to identify the best network designs, but it needs to monitor what’s happening with the network, which is not possible if all the organization has is a simple spreadsheet or database tool.
  • Perform an Inventory Optimization Study
    While adding more Distribution Centers (DCs) may reduce transportation costs, it will also increase inventory costs, on average, as more inventory will generally be necessary to meet default stock levels. However, if not all distribution centers service locations with the same service level commitments, then inventory can often be varied to minimize carrying and holding costs. However, a careful analysis, supported by an appropriate toolset, will be required.

How Important is OEE to Your Performance Measurements?

OEE, Overall Equipment Effectiveness, captures the percentage of time that equipment, when running or required for production, is producing good-quality product at an acceptable rate. It is calculated by multiplying the availability rate by the production rate by the first-pass yield.

On the shop floor, OEEE can be measured hourly and gives the on-site manager a real-time look into productivity. It also has the advantage of limiting a drop in productivity to one of three factors: machine up-time, machine speed, and production quality. If the machine was not down during the hour, then there is a problem is with either the speed or quality. If the machine/process speed is within the acceptable range, then there is a problem with quality. And if there is a problem with quality, either a machine is malfunctioning or a worker is not producting up to par. If, after testing each machine, it is found that machines are working within acceptable parameters, then a worker needs more oversight or training.

In addition, according to a recent article in Industry Week, it can help to eliminate ‘silo’ thinking as the manufacturing process is measured as a whole, and not a system of discrete steps. However, if misunderstood, OEEE can promote “over production” as any increase in the production rate without a(n unacceptable) decrease in quality or machine availability improves the metric, and this is often the easiest path to metric improvement.

So how important is “(revisiting) OEEE” to your Performance Measurements? At the plant level, it is certainly important. However, at the Supply Management level, it’s more about the value generated from manufactured goods, which depends on their ultimate cost and ultimate sale price. Thus, if costs go down and revenue goes up when less produt is manufactured and an artificial scarcity is created, then a lower OEEE might be desired. But if costs go down and revenue goes up when the market is flooded, then a high OEEE might be desired. While maintaining an OEEE in an efficient range is desirable, it’s probably not the most important metric in the Supply Manager’s toolkit.

Will Twitter Be the Downfall of the Western World?

I can’t help but notice that as GDP growth in the BRIC rises, the growth of Twitter usage in BRIC countries, and the continents they belong to, slows (in comparison) while GDP growth in the US, Canada, and Western Europe falls as the relative growth of Twitter increases rapidly.

If you don’t believe me, check out this visual map of the world in tweets by Eric Fischer.