Category Archives: Manufacturing

Dear Build-to-Order / Make-to-Order — Dumpster Dive if you want to Survive!

A big thanks to Lora Cecere, the Supply Chain Shaman, for inspiring this post as a result of her recent Thoughts on Thriving. I’m sure she had zero intention of doing so, but when inspiration strikes … it’s time to write!

One of the advantages of working with a LOT of engineers (and I mean a LOT of traditional engineers, not code junkies who may or may not have a formal, accredited, education), is that you get to talk to a lot of engineers in build-to-order / make-to-order direct (reliant) industries, and even three years after COVID started, and a year after the majority of the world proclaimed it over (and secretly accepted its endemic and we just have to live with it), manufacturers with build-to-order / make-to-order divisions are still having significant issues which primarily focus around:

  • a 12-to-24 month wait for (critical) parts (despite getting orders in early, and often being told they are a “priority” or a “customer of choice” [which pretty much only means the supplier chose to take your money])
  • a lack of a modern order management system that can make sure that the parts are properly allocated when they come in to the customer they were for (and not auto-allocated in a group as soon as any “build” can be completed, often allowing a smaller customer to jump the queue over a larger one that’s been waiting six months larger — and, FYI, even SAP installations don’t necessarily solve this)
  • a lack of engineers qualified to maintain / refurbish existing systems until the parts arrive to allow the replacements to be built and …
    as Lora pointed out
  • inventory glut in their pre-manufactured systems divisions as inflation curbs demand from those thinking twice about an unnecessary purchase, or one that can be delayed.

These divisions are usually separately run on different P&Ls, and often entirely different, fully owned, companies, which use different, non-complementary, and often destructive, strategies to deal with their problems.

The inconsistent, wrong, and often destructive, decision by the pre-manufactured consumer / (small) business division, seeing a monthly increase in inventory (storage) costs in conjunction with a decreased market value (as competitors announce newer “better” products), is usually to just find a very large retailer or distributor who will take them at a (massive) discount, especially if, across all units produced, they can break even or minimize the loss, and move on. (And if the organization gets desperate for cash, sometimes fire sale the inventory in a reverse auction.)

Why is this wrong and destructive? In many cases, the products, and more specifically, the parts they contain, have value well beyond what the organization ends up getting and, in fact, with a little re-engineering could often be used to solve the make-to-order / build-to-order crisis in the other division, at least in the short term. Even if the systems say it can’t be done or the engineers don’t tell you that it can.

What you need to understand is that the problems we are facing are exacerbated by business models that are typically built by business people with limited engineering knowledge and often no understanding of a real engineering mindset. Couple this with the reality that most engineers have limited to no knowledge of the larger business, limited knowledge of how to communicate alternative business solutions to a crises in business terms, and usually no willingness to do anything that would rock the boat. (You need to understand that some of the lies in the engineering stereotype are true. [Cue Huey Lewis.] Understanding this helps with effective communication.)

More specifically, the business models that dictate:

  • complete separation of divisions
  • using outdated systems, because there’s still x years on the amortization
  • never deviating from the initial design and bill-of-materials because that’s what was sourced/agreed-to-contracted, or whatever and/or
  • rigid separation of duties between product lines and divisions, even when the engineering team is qualified to work across them

And, ultimately, prevent creativity, re-use, and, most importantly, creative destruction where this could be the only solution to current problems. These business models and systems work(ed) well in predictable normal operating conditions when there was always sufficient, or excess, timely supply, but those days are gone and might never come back. (The next pandemic could be tomorrow, wars are still raging and having global impacts, multiple countries are amidst various levels of political upheavals, inflation and/or recessions are rampant globally, and supply chain disasters that used to be once a century are now more frequent than once a decade.)

Adaptability is key. The control system needs a processor? Who cares if the one in that pre-built unit in inventory not selling is based on a two year old design — it’s probably still more powerful than is needed and more than likely to survive the lifespan of the unit. Or, worst case, you over ordered the high-end model and need to rip out a more expensive component. If you’re talking a multi-million build-to-order contract with a key (strategic) customer, what’s a few margin points vs. not fulfilling the contract at all and possibly losing the customer?

In other words, if you’re going to treat excess inventory like trash, it’s time to dive into your inventory dumpster, find the diamond parts, and send the rest for recycling — individual business unit / P&Ls be damned. At the end of the day, it’s the overall health of the business, and transferring inventory from division A to division B at cost (to keep the accountants happy) so that a unit that would otherwise take a big loss prevents that loss and even makes a profit for the business is the right decision!

And if you let the engineers out of the tiny cubicle you forced them into, you’ll realize that the one thing a typical engineer is really good at, and the one thing a typical engineer wants to do, is solve these types of systems problems. Real engineers love the challenge! It’s the one thing that excites them more than any business process or perk you can offer them (with the possible exception of more pay, but even that is temporary joy because the smarter engineers realize if you’re offering them more pay without them asking, they must be worth way more to a competitor … and if they’re going to work in a box, they might as well be paid handsomely for it).

So, don’t be afraid to be creative, flexible, and dumpster dive! (And don’t tell me the customer won’t accept any variation on the order … if their business is being held up or seriously impacted by your delay, and they know they can’t get what they need any faster anywhere else, they’ll work with you on a modification they can get next month that will do the job versus having to wait another year.)

And if you don’t have a pre-manufactured division, this advice still applies to you. Except, instead of dumpster diving in your organization’s own inventory, do so in pre-manufactured systems being sold at heavy discount (for the purposes of dumping), local suppliers with excess inventory of products with usable components, and even consumer electronics stores (where deep discount computers can yield perfectly good processors and memory that can be worth as much as the entire system to you).

Another Decade Has Passed. How Are You Doing on the 10 Rs?

Ten years ago (yes, this blog has been around for a long time, especially in internet years), we picked up on a great article by SupplyChainBrain on Ten Steps to Green Packaging in the CPG Industry which was a great article not just because it demonstrated just how many ways there were to make packaging green, but because it gave us so many ideas on how to make our entire supply chain green.

In brief, the ten steps were:

  1. Replenish
    Purchase raw materials from suppliers who employ sustainable resource management practices.
  2. Re-use (Re-explore)
    Use recyclable material.
  3. Reduce
    Use ergonomic design and optimization to minimize the use, and size, of packaging material.
  4. Replace
    Replace hazardous and harmful substances with eco-friendly materials.
  5. Reconsider
    Use renewable materials whenever possible.
  6. Review
    Inspect, monitor, and control waste in the packaging process.
  7. Recall
    Immediately recall harmful packaging and put processes in place end harmful packaging.
  8. Redeem
    Collaborate with retailers and collect reusable and recyclable packaging materials.
  9. Reinforce
    Set up a Centre of Excellence (COE) to disseminate environmental best practices.
  10. Register
    Sign up for a carbon reduction commitment initiative and follow-through.

And they are globally applicable.

  1. Replenish
    Regardless of what you are buying, you want a supplier who is focussed on sustainability.
  2. Re-use (Re-explore)
    Modern science has advanced us to a point where most materials are reusable and recoverable. You should be working to get to 90% re-used/recycled/replenished content within a decade.
  3. Reduce
    Modern structural analytic techniques (especially with the low-cost availability of high-powered computing, low-power cores, and the ability to host data centers in naturally cooled environments) allow for the usage of much less material than before, without compromising any structural integrity
  4. Replace
    There is no need for hazardous materials in the majority of products on the market today. Science has delivered us alternatives.
  5. Reconsider
    Non-renewable materials are becoming limited. It’s not just a cost or green consideration anymore, it’s becoming a necessity.
  6. Review
    Waste should be minimized inside your organization and eliminated in your supply chain. Waste to you can be raw material to someone else. Food stuffs don’t meet your level of quality for human consumption? Might more than surpass the level of quality for animal consumption and, if not, there’s always bio-mass energy production. Metal scraps? Straight to smelting and recycling. And so on. Your waste can always be someone else’s inputs if you are smart about your process.
  7. Recall
    Whatever you are creating should be benefiting the consumer, not harming them. If you screw up, recall the product, immediately fix or recycle it, and improve your processes so it doesn’t happen again. (Don’t reprimand the workers, but fire the pointy haired idiot who requested it or was responsible for guiding the workers. And yes, SI still disdains the average Master of Bullshit Administration.)
  8. Redeem
    Make all of your packaging reusable and get it back. (Considering how many empty miles exist in the trucking industry, this is not a big deal or big cost if properly planned. Coupa Sourcing Optimization and Jaggaer One Advanced Sourcing Optimization in particular have models customized for transportation and reverse transportation. USE THEM!)
  9. Reinforce
    … and mandate! Set up the COE, make an executive mandate that policies must be followed, and green your operation.
  10. Register
    Make a public commitment to carbon reduction, waste reduction, and energy usage reduction, measure annually, publicly report, and follow-through. (And don’t just buy carbon credits or carbon offsets. Don’t make your problem someone else’s.)

Sustainability isn’t hard anymore … and the organizations that start now will be the ones that will be around in the decades ahead.

Are You Doing Your Own Quality Spot Checks? And Should You Be?

By now, if you haven’t heard of the Kobe Steel Scandal, you’ve been living in a cave. (Which, in some organizations, is highly probably given that one of the tricks the CFO likes to do to Procurement when fiscal year end is approaching is to lock them in the basement until the mandatory savings objective is reached … hence our post yesterday on why every day is Halloween for some Procurement departments.).

This scandal is scary. Not only because the data falsification on strength could go back as far as 10 years on some batches, and who knows what bridges, high-rises, and busses that steel has gotten into (and even a .1 degradation, while not enough to jeopardize immediate safety, can impact expected life span and increase susceptibility to decay, making safety a concern down the road before inspection and maintenance schedules kick in).

But this brings up a good point? If more companies were doing more spot checks on shipped product and quality, instead of just trusting Kobe, would it have been 10 years before the scandal was exposed. Even if only a small percent of batches are affected, I highly doubt this would have been undetected for 10 years, even if only one bar or sheet in multiple shipments were tested.

This is an example of what happens when finance tries to get too greed or supply chains to lean by centralizing a function downstream. When one party is responsible for everything, one failure can reverberate up multiple chains undetected — and have potentially disasterous consequences. Now one might say this problem is solved by co-locating people on-site, but if those people never leave the site, even though you pay their salary, their work family is the people they work with day in and ay out and the existence of that company is their livelihood. Are you sure they won’t bow into the local culture and, if the culture dictates, defer to authority or collectively hide the shame?

Just like third party audits are needed, for critical materials, so are third party quality tests. Doesn’t have to be you, could be an independent organization set up between your co-opetition that does random independent quality spot-checks on 1 in 10 shipments and shares the data with everyone.

Just like a good Chef would never use an ingredient without insuring it’s quality, a good Procurement organization should never let a shipment be accepted without a high degree of confidence that it’s a quality shipment. And confidence like that only comes from organizational testing or trusted third-party independent testing. So don’t get too lean or too cheap — your organization, and the lives of its customers, could depend on it.

Cognitive is the New Buzzword. But what does it mean?

It seems that everyone is talking about Procurement these days. A Google search for cognitive procurement returns about 650,000 results that include news sites, analyst firms, and vendors ranging in size from Old St. Labs to SAP Ariba to IBM.

Definitions are varied as well. Quora defines cognitive procurement as the application of self-learning systems that use data mining, pattern recognition and natural language process (NLP) to mimic the human brain to around the processes of acquiring, buying goods, services or works from an external source. IBM’s Vice President of Global Procurement defines cognitive procurement as the use of systems and approaches that are able to learn behaviour, manage structured and unstructured data, and unlock new insights to enable optimized outcomes. Vodafone defines cognitive procurement as augmented intelligence capabilities that allow a category manager to make faster and smarter data driven decisions that deliver competitive advantage.

But what does this all mean? First of all, the only commonality is using systems to do a task better. Which systems? Which tasks? Who gets the benefits? And what precisely are the benefits?

To figure this out, we have to go back and define what makes for better Procurement. The first step is good Sourcing. What are the keys to good Sourcing?

There are a number of keys to good Sourcing. Some of the most important include:

Visibility. Who are your potential suppliers? What do they provide? Where are they? What do you know about quality, reliability, delivery, etc? What are the risk factors with dealing with them? What data can you get on finances and sustainability? You need good information.

Analytics. Once you get the information, you need to make sense of it. Roll up component and material costs across bill of materials. Amalgamate risk ratings into meaningful scorecards. Aggregate demand across categories. Determine what you need, when, in what quantities, and how much it should cost before you start a negotiation.

Modelling. The ability to define detailed should cost models based on components or materials, production costs that include energy and labour and overhead, and other relevant cost factors. To define how those costs change with market data or production volumes. And so on.

Optimization. Once you get the data, you need to figure out the baseline costs and what the optimal awards are assuming nothing changes. Then how those change as costs change as bids change. Also, what are the optimal logistics strategies and costs. How does logistics impact the award decision? How should the logistics supply chain be designed?

Negotiation Support. At some point, the analysis needs to turn to negotiation, because the goal of sourcing is to acquire the products and services the organization needs to support its operations and satisfy its customers. All of this capability needs to be brought to bear in a cohesive, assistive, fashion that can help a buyer make the right decision.

That’s what cognitive procurement is — presenting a user with the information they need when they need it to make the right decision. Not automated buying. Not artificial intelligence which doesn’t exist. Not trying to mimic the human brain, as we don’t even fully understand how that works now.

So, does any application meet these requirements?

Consumer Sustentation 74: Demand Planning

Demand Planning is a damnation. Why? As per our original damnation post,

  • traditional demand planning models require historical data
  • traditional demand planning models require market predictability
  • traditional demand planning models require market foresight
  • traditional demand planning requires knowledge of the expected price point

And how often in today’s constantly changing consumer marketplace, with new product releases coming faster and faster (to the point where your phone, laptop, and music device is out-of-date by a whole new release within a year), do you have good historical data, market predictability, and foresight? And how often can you be confident in the price-point, as a skunk-works product release by a competitor between sourcing and sale can force a price reduction to prevent inventory sitting on the shelves indefinitely.

So what can you do? (Besides burying your head in the sand like an ostrich?)

1. Get as much market data as you can.

Collect as much data as you can on your competitors imports, sales, and revenue using publicly accessible import data, analyst data, and company annual reports. It won’t be accurate, but with enough data you can often identify better trends than you could on the most similar product in your own inventory (which might not be similar, or recent, enough to be sufficiently relevant).

2. Have third parties conduct surveys on your behalf.

Sometimes the best way to gauge a market forecast is to actually conduct customer surveys and have a third party use the data to estimate demand for you. If you have no clue, the best thing you can do is admit it and get an expert to help you come up with a realistic demand forecast range.

3. Don’t focus a number, focus on a range and a potential rate of ramp-up or ramp-down.

If you know the demand is expected to be in the 100K to 200K units a month range, and the demand could double overnight, then you know that you need to contract for the low-end, but with a supplier that could ramp up to double production in a matter of weeks if necessary. And you have to negotiate a contract that allows orders to escalate, with pre-defined increases if the supplier is forced to work overtime (so you don’t get any billing surprises or animosity down the road).

4. Keep on top of sales data in real-time.

Be sure to get at least weekly PoS updates, and re-run the projections on a regular basis to detect an upswing or downswing early, so that you don’t get caught with your pants down, or, even worse, your pants off.

If you follow these tips, then you can get a reasonable grip on demand planning while your competitors flounder with the flounders.