Author Archives: thedoctor

Digital Disruptors or Digital Disruptions? Part I

Kinaxis recently published a post on 8 digital disruptors that are coming soon to your supply chain. But, at least as far as SI is concerned, hopefully not too soon. While they all pose promise in theory, the reality is that it’s going to be a while before they deliver in practice. And while the doctor doesn’t like having to play the role of the grumpy old man who keeps shouting get your tech off my lawn sometimes he has to as no one else will. The reality is that some developments should stay in the world of sci-fi, at least for now. Let’s take them one by one.

Connected Home

The promise: more insights into customer demands and usage patterns

The reality: the fridge auto re-orders everything the customer buys, even if the customer only bought it to try and hates it, and all the demand signals are double what they should be … there goes your forecasts!

IoT at Retail

The promise: eliminate shelf stock-outs

The reality: the system not only pushes stock to the shelves, but triggers the inventory system to re-order at push levels, which will include one-time peaks as a result of sales and clear-outs, which will result in excess inventory being ordered (and possibly cleared-out later on to a discount seller)

In-store Robotics

The promise: improve customer service with robots

The reality: the robots drive your customers even more insane than those automated telephone systems, because they can’t be hung up on, won’t leave the customer alone, and don’t stop repeating “I don’t understand your inquiry, please repeat” … end result, lost sales, lost robots (when they are punched to bits), and lawsuits (from the customers who break their hands beating up your robots)

Crowdsourced Delivery

The promise: the gig economy delivers faster and cheaper than you ever thought possible

The reality: sometimes it works, but other times packages sit at a pickup site for a week, get damaged, or just go missing – at rates much higher than with traditional delivery services as the crowd-sourced delivery truck skips a pick-up (because it over-committed), as the Big Box Mart delivery employee tosses it in his truck, and as the thief, who signed up to the network under a false id with the overall intent of stealing high value items for sale, makes off with your goods

And yes, the doctor realizes that:

  • the re-order bug in the connected home could be fixed, or the system programmed to require user approvals for first-time re-orders, but as the system “learns” and gets good, the user will just trust it
  • the IoT Retail system could be alerted of cancelled lines, sale periods, etc. — but without flawless integration, human error will lead to exacerbated error
  • the customer service robots could be programmed to understand get lost and get lost, but there will always be an unaccounted for situation (the customer doesn’t speak an expected language, doesn’t speak at all, has a system indecipherable accent, etc.)
  • the crowdsourced delivery system could be limited to vetted partners, but isn’t that what carriers are?

None of these technologies are anywhere close to prime time and given all of the current weaknesses in supply chain software and integration between various systems with limited integration options across platforms, this is not a situation that’s going to change overnight.

Factors to Consider When Re-Shoring Your Supply Chain

As part of his Make America Great Again campaign, Trump is preaching Buy American. If you want to fall in line, then you have to Buy American. But you can’t Buy American without American manufactured goods, of which there are not enough to go around if everyone wants to Buy American as so much manufacturing was outsourced over the years.

And even if you don’t want to fall in line with Trump, you might still want to Buy American because if Trump continues to raise import tariffs on a whole host of goods, you might want to Buy American just because the costs of not doing so are getting too high. Either way, if more companies want to Buy American, then we need to bring back American Made.

And if we are to return to “American Made”, that’s going to mean an awful lot of restoring. And, unfortunately, that’s easier said than done. Why?

Our Factories our Out of Date

You can’t just bring in a cleaning crew and restart a 20 year old factory overnight. By now, anything of value of moveable size that wasn’t already looted is probably broken or rusted. But even fixing everything up is not enough. Technology has moved on, and so has the production lines for that technology — and right now all the new production lines exist in China, not the United States, as a result of all of the production moving there and Chinese factories investing in the infrastructure necessary to make new products. In many industries, we need completely new or fully overhauled factories to start producing American Made products again, and these factories are not going to be built or revamped over night.

Our Workforce is Unskilled

You can’t just un-retire the workforce, or at least the workforce still of working age. First of all, if a plant has been shut down for two decades, any workers who are still young enough to come back full time would be in their late 40s or 50s now and would have been late 20s or early 30s then. These would have been the junior line engineers, not the senior line engineers or plant managers. As a result, they wouldn’t even have had half of the skills you’re looking for when they retired. And since technology has moved ahead 20 years, and they haven’t kept up (as they had no reason to without an appropriate job), they know less than kids in college. The workforce has to be retrained.

Our Logistics Have to be Rethought

This is not as big of an issue, but right now all of the carriers have lanes optimized for getting goods from ports to common warehouse locations, not from factories in busy industrial parks, or, more likely, on the outskirts of big cities to your warehouses on the outskirts of other big cities. You need to redesign your logistics and so do they. But the good news is that with the right re-design, and freight optimization, they’d have less empty lanes as, right now, they have a lot of full lanes from ports to warehouse districts and empty lanes back. Now they’d have full lanes from industrial parks with factories to other industrial parks with warehouses that also have nearby factories they can pick up from and so on.

Our Labour Costs are Much Higher

So not only do we have to overhaul our factories, but we have to insure we adopt the most efficient technologies that allow our workers to be as productive as possible for every hour they work. And we have to focus on lean process design and lean manufacturing to ensure that there is no waste in the process. That’s the only way a company can really compensate for the higher labour (and sometimes energy and overhead costs in general) that comes with American Made. One has to remember that even though a lot of consumers want to buy American, just like they want to buy sustainable, they are only willing to pay so much of a premium.

This is not to say that you should not reshore. You absolutely should. the doctor has been preaching the value of home-sourcing for a decade! However, you have to do it smart and to get it right, you will have to start slow. And don’t be afraid to ask for help.

Right Now, Savings Are Everywhere …

… because you don’t have your costs under control. While there is no such thing as true savings, because finding savings just means that you weren’t spending optimally to begin with, the reality is that you are not spending optimally. Not even in your most strategic categories where you are putting the most of your effort. This is because you are not applying both leading strategic sourcing decision optimization and leading spend analysis to this category across multiple levels on a global category scale. (Even if you own both technologies, chances are you don’t own best of breed in both, and even if you are that one in a thousand company, the doctor has seen the most complex optimization models that are being built by the average company, and they are still elementary compared to what models could, and should, be built.)

So, even if you are given an unrealistic savings target, if it’s 10% or less, it is easy to meet because, until you have applied these two advanced sourcing technologies to every single category, and done so in a three-year time span (as costs always creep back in to a category over time, and that’s why GPOs and niche consultancies find you savings on the same category again and again if sourced three to five years apart), there is overspending everywhere. So, if you can just get your CFO to write the cheque, acquire these technologies, and apply them appropriately, you’re going to find significant savings on the 60% to 80% of your non-tail spend, which hides even higher levels of savings (as we have discussed here on SI in the past).

And then, since the secret to cost control is to source everything, make sure you are buying everything that costs 5 figures or more through an RFX or Auction, and, in many cases, preferably one that is automatically configured and run for you by the platform with little buyer involvement beyond keeping the approved supplier database up to date and verifying the award before the contract or PO is sent to the winning supplier. And if you actually manage to find the majority of savings across your leading spend and tail spend, limiting potential year-over-year cost reductions to 3% in the following year, you’ve still only scratched the surface.

Just because your organization has optimized it’s spend, that doesn’t mean that your strategic / high volume supply base has optimized their spend. This is where supplier development and supplier (relationship) management comes into play. If you help your top x suppliers, where this X constitutes 80% of your strategic spend, and over 50% of your spend, save 10% by optimizing their procurement, you lower your costs on this half of your spend by 10%, and there’s another 5% without doing anything but process improvement. But we always know that savings don’t stop at process improvement, they continue with product improvements that enhance quality, reduce manufacturing costs, and reduce reliance on rare earth metals or non-renewable materials — all of which can be identified with the right innovation.

So, in CFO speak, savings are everywhere, and you should have no problem finding significant savings as long as you acquire, and apply, the right tools for the job. This means if you don’t have appropriate advanced sourcing technologies, you have to go get them. They are worth it.

There are 4 Modes of Innovation, But Only Two Types!

A recent article over on HBR.org on the 4 types of innovation and they problems they solve didn’t really discuss the types of innovation, but rather the modes. The author, who broke innovation down into the age-old 2*2 matrix, with domain definition on one axis and problem definition on the other, indicated that their was basic research — typically carried out by or with academia, breakthrough innovation — typically accomplished by skunk work projects, sustaining innovation — typically done by R&D labs, and disruptive innovation — that often comes out of VC-funded innovation labs.

As you can say, these are not really “types” but methods of innovation which can each lead to innovations that might be classified as basic, sustaining, breakthrough, or even disruptive innovations (so the names are quite confusing), and this leaves the question, what are the real types of innovation and how does innovation happen. (An academic might come up with a disruptive way to create new communications technology and the best-funded VC lab might, after years of research, just come up with a way to make a fabrication process more efficient, saving 20% of time and 10% of cost, and not discover a single revolution.)

So how is innovation accomplished? These days, it’s fundamentally accomplished in one of two ways — either using the tried and true method of good old fashioned human ingenuity or the new method of deep learning that can discover patterns, formulas, or correlations that humans can miss. But is this the kind of innovation we need? Or even want?

As per our last article where we asked if the end of the digital west was in sight, while these deep learning systems can, with enough data, make predictions that are much more accurate than the best human experts, the fact that they cannot explain their reasoning is very disturbing. Very disturbing indeed. Do we really want to trust them with a new drug formula that, while having the potential to save thousands, also has the potential to kill hundreds, with no knowledge of which individuals are at risk of instant death? the doctor hopes not!

While it’s okay to use these systems to identify the most likely directions of success, it’s not okay to use these systems to blindly choose those directions without independent verification and confirmation with rationale, deterministic explanations. In other words, while we should use every tool at our disposal, we should never replace human intelligence and ingenuity with dumb systems. Because, while there are two types of innovation in use these days, there’s only one real type of innovation — human innovation. the doctor hopes that we never forget it and return to the glory days where all innovation was human innovation.

One Hundred and Ten Years Ago Today …

The first taxicabs begin their operation in New York City, imported by Harry N. Allen, a thirty year old businessmen, who, as per this great NY Times article on The Creation of the Taxi Man, became incensed when a hansom cab driver charged him $5 for a three-quarter-mile trip from a Manhattan restaurant to his home.

These vehicles were imported from France as he wanted reliable, improved automobiles that were superior to the American versions derided as “smoke-wagons” using par of the eight million in capital he raised to start the business and the first taxi cab went into operation on August 13, 1907. (Source: 6sqft) Less than two months later, on October 1, 1907, Alan he orchestrated a parade of sixty-five shiny new red gasoline-powered French Darracq cabs, equipped with fare meters, down Fifth Avenue, which could be interpreted as the grand opening of the taxicab revolution in New York and the United States in general.

It was an important milestone in the evolution of supply chain, as it allowed the people who run it to get around quicker and more predictably.