Category Archives: Manufacturing. Metrics

Will Trump’s America First Policies Put America Last?

Trump wants to bring production back to America, and that’s a noble effort and, for many companies, a smarter thing to do than they realize as escalating logistics costs and global uncertainty make near-shoring and, even better, home-shoring much less risky (and, in the long run, often more cost effective) than off-shoring, especially when there’s no good reason to off-shore.

But Trump’s recent almost across-the-board tariffs are going to cost some American manufacturers anywhere between millions of dollars to hundreds of millions of dollars as, simply put, due to a lack of availability of certain resources, Americans have to import. The net effect of so many lower-cost global options over the years is that American companies went off-shore for just about everything they figured they could get cheaper, and as a result not only has there been little to no growth in raw-material extraction and production at home, but some industries have actually lost capacity. And that capacity can’t be turned on and ramped up over night.

As a result, Americans need to import aluminum, steel, and other metals, at least for the short term. And while most of that importation should come from near-source locations (like Canada and Mexico, especially if the US wants to maintain NAFTA, which, for the most part, is better for it than Canada and Mexico [combined]) to decrease risk and increase border security (after all, it has two borders — Canada and Mexico; working with Canada and Mexico on security issues makes the entire North American continent safer), Americans have such high demand in some categories even Canada and Mexico can’t meet it all.

For now, American manufacturers have no choice to but import their raw materials from other (non-exempted) countries. It’s unfortunate, but it’s the reality. And if any of these companies have access to good global strategic sourcing optimization and supply chain planning tools, they’re going to start modelling and realize that it’s cheaper in the mid-term, and maybe even the short term, to manufacturer whatever is intended for the global market outside the US. Rev that factory back up in Mexico and serve the world from there. Only manufacture at home what is needed at home.

And what happens if companies shift their operations to other jurisdictions? America loses jobs, tax revenue, and it’s share of the global GDP. That’s, hopefully, not what Trump, or anyone inside North America, wants.

And while there should be tariffs on goods imported from jurisdictions a country can’t compete with and, in particular, a country that allows its corporations to pay it’s employees $2 a day for a job an American would have to be paid at least $58 a day for (as there’s no way America could compete with imports otherwise), those tariffs should be designed not to hurt the manufacturers who depend on raw materials they can’t get at home, or at least be used to fund local raw material extractors / producers to give those companies at home a local option. For instance, all tariffs collected should go into a fund to help local raw material extractors and producers expand or increase production, and until that happens, companies that need to rely on imports in the interim should at least get tax credits until such a time as they have a local option. Or they are just going to find ways to take as much of their business as they can elsewhere.

And that won’t make America great again, or even competitive. While I actually agree with the premise that, especially when it comes to manufacturing and agriculture and staple industries, America needs to be great again, unfortunately, just slapping import tariffs without a broader plan to achieve that goal is not only not going to help, but it’s going to hurt.

Procurement Trend #09. New KPIs

Only six sinsational anti-trends to go. That means we’ll reach the end of this series in two weeks. We should be all happy, happy, joy, joy! But how can one be joyful when one realizes that this means we had to slog through a two-four of anti-trends to get here, and that some of us probably had to drink a two-four in the process to keep the dark thoughts at bay! And, to be honest, the doctor is really worried that there is no skin left on the futurists’ drum (which has taken more of a beating than any drum set Neal Pert has ever owned) and that, giving their predilection for ancient trends, these futurist historians may try to skin LOLCat to give their drum new life.

So why do these funky* futurists keep trying to push new KPIs as a future trend? Is it because of their fondness for three-letter acronyms that stems from their party-hardy frat-days (filled with a little too much beer pong)? the doctor has his suspicions, but it’s probably because they finally figured out that:

  • what gets measured gets managed is still true

    and KPIs require measurements

  • new processes and new technologies mandate new measures

    so KPIs need to be updated whenever a new process or technology is brought in, which should be a regular occurrence in a best-in-class Supply Management organization that makes an effort to keep up with the times

  • new measures provide new opportunities for improvement

    just like new Intel cores have provided new opportunities for faster computation ever since it was all about the pentiums

Measure to Manage

If the only reason that you are measuring spend, year-over-year changes, and captured savings is to report those metrics at the monthly meeting, then you are doing it all wrong. If you are not using base measurements as a foundation to identify inefficiencies and opportunities for improvement and repeated measurements as the foundation for evaluating progress, then you shouldn’t be measuring in the first place. You’re better off spending your time in old-school hard-nosed negotiations because, at some point, you might actually whip that sales rep so hard that he forgets which way is up and goes under the floor just to escape the verbal onslaught. (Of course, you will create disdain in the supplier who will do the bare minimum to fulfill the contract terms and, if the rep buckled too much, you might even bankrupt the supplier who hopes to make it up on future deals but never does, but hey, at least you got those impossible savings, right?)

Measure to Master

It’s not enough to measure just to track the status and success of current initiatives, you should be measuring with a goal of achieving mastery. If the benchmark for the average throughput in your industry is 100 invoices/day/clerk, then you should be striving to get your exception-based invoice automation process to 100/day/clerk error-free invoices and nothing less should do. If you don’t get there in the projected amount of time, you should be introducing new measures that break down, or influence, the process flow such as resolution time per exception invoice, average buyer response time per clerk contact, average number of line items on a problem invoice, etc. until you figure out where the slow-down is and what you should do about it. (Automatically reduce exceptions by kicking invoices back to suppliers with explanations of errors and do not allow resubmission until corrected, mandated response within 48 hours or a black mark in the buyers’ performance review, break down POs to insure more manageable invoices, etc.)

Measure to Excel

This means not just measuring process, throughput, and savings but finance measures favoured by the C-Suite, even if they do not help Supply Management directly improve performance. At the end of the day, if Finance is happy, the C-Suite is happy, and Supply Management is much more likely to get the financial resources it needs to implement new systems and processes that will ultimately improve the metrics even more.

* and not the good kind of funk

Open Up Your Supply Chain With E2Open

Today is the official launch of E2Open‘s new Collaboration Center, E2Open Version 8.0. The focus of this release are their new supply dashboards with real-time KPIs, predictive analytics and exception notifications designed to allow an organization to manage its global trading network across multiple supply tiers.

E2Open was founded in 2000 with the vision to provide supply chain managers visibility into their entire supply chain network — beyond just the first tier of suppliers because problems often start with your suppliers’ suppliers and your suppliers’ suppliers’ suppliers. Getting visibility into a late shipment or raw material shortfall as soon as it happens gives an organization time to find an alternate supply or alternate go-to-market strategy, as opposed to finding out the day after your supplier was supposed to ship. Since then, E2Open has gone through multiple versions of its platform and its E2open Business Network (8 to be precise) and now offers solutions in Collaborative Supply Planning, Demand Management, Logistics Visibility, Order Management, Inventory Management, and B2B Managed Services with a customer list that includes Blackberry, Dell, FoxConn, Hitachi, Motorola, and Seagate to name a few.

However, today we are only going to focus on its new collaborative platform and its supply management dashboards to be precise. Why would I do such a thing, especially since I repeatedly claim that Dashboards are Dangerous and Dysfunctional in full agreement with Robert D. Austin? Because the reason they are dysfunctional is that they lull you into a false sense of security when you see a lot of green. As I said in SI’s now classic post:

a dashboard can not tell you how well you’re doing … the best it can do is capture the data it’s been programmed to capture, roll-up the metrics it’s been programmed to roll up, and do the built in calculations of efficiency based on those roll-ups.

As a result, even if it tells you that 90% of spend is “on contract”, that doesn’t mean it is. It won’t tell you that 10% of spend has been misclassified under the wrong code and is being reported as on-contract when it’s really, really not. The truth is that:

a dashboard can only provide an upper bound on how well you’re doing, and this is useless. Reporting that my efficiency is at most 98% when it is in fact 92% is useless and unactionable.

However, if the goal is reversed from trying to tell you how well you are doing, and giving an inaccurate upper bound, to how poor you are doing, and give an accurate, minimal lower bound, it becomes useful. And if you can then define metrics such as inspected orders, reviewed invoices, verified shipments, etc. and report on the uninspected orders, unreviewed invoices, and unverified shipments (etc.), then you not only know everything that’s wrong but how many dark corners could be holding problems waiting to materialize but where to look when the problems you know about have been solved.

And that’s why E2Open’s new dashboard, developed in HTML5 and available through your browser, is useful. Not only does it provide deep, near real-time insight into your global supply network, with data aggregated across the multiple tiers of your supply network as fast as the platform can get access to it (which is real-time if the suppliers are using a modern supply management system with real-time query / export capability or once a day if the supplier is still on an old ERP/MRP that does a daily export in CSV to a secured FTP directory), but the drill-down dashboard can be configured to display whatever KPIs and metrics you want, however you want.

You can choose the standard indicators that show that 98% of your orders are expected to ship on time, based upon tier-1 and tier-2 suppliers shipping their components and raw materials on time, or you can invert it and show that 2% of your orders are late. Every metric can be reversed and you can filter what is displayed. So, if you want, you can set it up to show ALL RED and just show you

  • all the problems the system has identified that need an investigation and/or resolution and
  • how many records, products, shipments, etc. have not been manually reviewed, tested, verified as this will tell yo exactly where problems could be lurking and, if the count is high, where more oversight might be required to prevent new problems.

It’s not the standard configuration, but it is supported — and the ability to razor sharp focus into issues two levels down into your supply chain within 24 hours of your supplier’s supplier reporting a delay is fantastic. And, unlike most “dashboard” products, they support the creation of multiple public and private “dashboard” pages, at different levels of visibility and granularity, to allow each user to track all KPIs, metrics, and issues relevant to them. It’s not trying to be a one-size fits all solution because E2Open recognizes that, in supply chain, one size does not fit all.

Furthermore, 90% visibility at each tier is possible very quickly as they have done over 400 ERP / MRP / Supply Chain system integrations to date and can on-board suppliers on all of the major platforms very quickly. And they even have the ability to do trending and predictive analytics to identify where problems might occur — which is useful when you know that somewhere in a certain data blackhole there is likely an issue but are unsure where to start.

E2Open‘s new release is worth checking out. The platform strives to give you a single version of the truth across your supply network and does a good job at doing it. And the inventory management / collaborative forecasting drill down capability is just as detailed as some of the best inventory solutions on the marketplace.

Key Takeaways from the UL Product MindSet Study, Part II

A couple of posts ago, we discussed some Interesting Facts and Figures from the UL Product MindSet, a recently released study that quantitatively surveyed 1,195 manufacturers and 1,235 consumers across a range of export and import markets in high-tech, building materials, food, and household chemicals. Then, in our last post, we reviewed four key takeaways from the UL Product MindSet Study. Today we are going to discuss our fifth, and final, takeaway from the study.


They need to take off those rose-coloured glasses, put them on the floor, and stomp them to bits. And then they need to take the bits and grind them into dust. The findings illustrate that manufacturers are so far out of touch with reality that it’s downright scary.

First of all, let’s review the standard Gaussian curve. In a standard curve, only 31.8% of the population is one standard deviation from the norm. If we accept that only one standard deviation from the norm is enough to be “ahead of the curve”, then, at most 15.9% of the population can be ahead of the curve (and, similarly, 15.9% of the manufacturers will be behind the curve). However, the report found that an extreme majority of manufacturers believed they were ahead of the curve in safety, reliability, sustainability, and innovation. In short, this means that:

  • 81.1% of manufacturers are out-to-lunch when it comes to product safety
  • 81.1% of manufacturers are day-dreaming when it comes to product reliability
  • 78.1% of manufacturers are high-on-fumes when it comes to sustainability
  • 73.1% of manufacturers don’t-have-a-clue when it comes to innovation

The reality for the majority of manufacturers (68.2%) is that, they are, at best, on the curve. But since the reality is that, if they don’t continue to progress as their supply chains evolve around them, it won’t be long before them are behind the curve, they should just assume they are behind the curve, because 15.9% of them are and 68.2% of them aren’t far from being among that 15.9% without continued improvement efforts. So when they are done grinding those rose-colored, haze-inducing, glasses into dust, they need to get to work!

Furthermore, I see no evidence that the majority of manufacturers understand sustainability. I know it’s hard with all the greenwashing out there, but if one just ignores the hype and uses a little common sense, one can define sustainability as that which sustains operations and the environment at the same time. With this definition, it is easy to see that if an organization is not reducing its environmental footprint and at least maintaining, if not increasing, profitability at the same time, it is not sustainable. So 69% of manufacturers are wrong when they say that environmental products aren’t profitable — because, defined (and designed) right, they are.

And those manufacturers who do understand some of the basics of sustainability obviously don’t understand it’s importance. First of all, it’s not just about sustaining the environment, its about sustaining operations for generations to come. If the resources available are depleted before they can be replenished, there’ll be no materials to make new products. No products, no profit. No profit, no business. It really is that simple. As a result, sustainability should be as important as safety and reliability, not only one-fifth as important. Secondly, with even the majority of consumers in developing countries (such as China where four-fifths of the population would buy a truly green product over a non-green product if proof of claims could be provided), an organization is leaving what is potentially the biggest gold-vein available to it untapped. And finally, if manufacturers as a whole don’t change their understanding and their views, then the lot of them are are being hypocritical! (It is impossible to be ahead of the curve in sustainability, as 94% of manufacturers ridiculously claim to be, while not placing the same importance on sustainability as is placed on safety and reliability.)

Yes this is harsh, but face it, manufacturers are not going to move forward if they continue to believe the all-rainbows-and-roses picture that some other misguided (or is that money-grubbing?) analysts are painting for them. But there is a bright side. Whereas a typical organization would probably pay five, or six, figures for that rainbows-and-roses report, this post is 100% free.
(So, to any manufacturer reading this, stop calling me a downer and get to work! If you do, maybe you’ll be one of the 15.9% that is truly ahead of the curve and reap the rewards that come from earning that status.)

How Important is OEE to Your Performance Measurements?

OEE, Overall Equipment Effectiveness, captures the percetage 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.