Category Archives: Manufacturing

Organizational Sustentation 53: Engineering

Engineering designs the products that represent a product-based company’s life-blood, as they generate the cash necessary for operations. No company exists without revenue (NO Sale, NO Store), and revenue only comes from the sale of products or services. And those have to be designed by someone, and that someone is typically an engineer. And while Engineers are the top talent in the company, as well as the best educated talent, they can also be stubborn rigid perfectionists.

As per our damnation post, each engineer has a process, a design, a set of approved raw materials, and that is the process, the design, and the set of approved raw materials. Trying to convince them that there is another process, alternate design, or other raw material that could be useable is like trying to force molasses to flow up a glacier, as this would mean that they would have to accept that there are better processes, designs, and raw materials, and that they exist today (despite the engineer’s expensive research and experience).

And even if they are willing to accept there are better processes, design, and approved raw materials — they are perfectionists. The cost model might say that 98% reliability is good enough because, in practice, only 1% of units will break down before the warranty period expires and the cost of flat out replacement will have little impact on profit margin, but Engineering will say otherwise. They will insist on the supplier with 99% reliability even with a 30% cost increase because a good engineer makes the best product they can make, cost be damned.

So how do you deal with this damnation so Procurement can achieve some sustentation? Education.

The first thing you need to educate is that reliability is not the number one concern, safety is. If a laptop, music player, TV, etc. stops working, it doesn’t harm anyone. The buyer might be annoyed, but if you immediately rush out a brand new replacement, the buyer won’t be annoyed for long. As long as the product doesn’t short out and electrocute the user, there’s no issue with a little less reliability.

The second thing you need to educate them is that sustainability trumps supplier longevity. A company has to plan for the future, not rest on past laurels, especially if those past laurels are suppliers that have never been questioned. While every supplier was likely a great choice for one reason or another at the time the supplier was selected, the supplier might not be such a great choice today. All suppliers have to be reviewed at one point in time, and if there are more sustainable suppliers, they have to be investigated.

The third thing you need to do is educate them that you can help them identify suppliers that could have better processes, designs, or raw material formulations and save them a lot of time searching for new alternatives, as you will be scouring the market on their behalf and only bringing them suppliers that might truly have a better, or different, option. As the gate-keeper, you will save them a lot of time.

Engineers are your best allies – they are educated, rational, and want to do the right thing for the organization, like you. So show them how you can help, and be willing to listen (and learn) from them, and you will be able to overcome this organizational damnation.

Societal Damnation 43: Rapid Urbanization & Mega-Cities

There are a lot of societal damnations converging upon your organization and threatening ruin. To date, we’ve covered the sharing economy, crime & piracy, fraud & corruption, (the lack of) education quality, the utter lack of math competency, (mega) project management, and Everything-as-a-Service (XaaS). Today we’re going to cover rapid urbanization and mega-cities.

You’re probably wondering why this isn’t a good thing. More people in less area means the organization can sell more goods in a smaller area and this means Logistics has less areas to ship to and Procurement fewer areas to buy for. This is true, but it doesn’t mean that Procurement’s or Logistic’s task is any easier. In fact, while rapid urbanization can often make Sales’ and Marketing’s job easier, it can make Logistics’s and Procurement’s job harder. Much harder.

Typically when a city starts to rapidly urbanize, it’s infrastructure is not ready for the rapid urbanization. It’s water plants are stressed (and may not be able to accommodate the introduction of factories that require large amounts of water). It’s energy grids are stressed (and it’s not unreasonable that rolling brown-outs or blackouts could be temporarily required at peak periods). It’s public transportation is stressed (and even getting a taxi can be a 45 minute ordeal). It’s roads are stressed (and there can be regular delays to pick up and drop off goods at cross-docks and warehouses). Plus, it’s core roads may only be 2 or 4 lanes in many places, with large trucks prohibited – meaning that Logistics will have to secure, and use, a number of smaller trucks for pickups and deliveries — which means a need for more drivers in an industry where the driver shortage is in the tens of thousands in some countries. And then there’s waste management. The sewer system could be taxed (with the end result that the rivers are used to handle the excess until they run full of waste like the Mithi river). The capacity to collect garbage might not be there (which leads to stringent limitations on how much trash a home or business can throw out unless they haul it out of town to dump by themselves). And process and recycling stations could be overloaded (leading to a stench, unhealthy buildup of noxious fumes in the air).

Then comes a rapid increase in pollution, which can see a rapid increase in hazardous airborne (smog-inducing) particles to the point where it is almost triple the national air quality average (as is the base in Beijing). This will, of course, eventually result in legislation to limit the amount of pollution an organization can produce, which will, if the organization hasn’t planned for it, result in costly production plant and fleet retrofits that could easily cost millions of dollars. However, this probably won’t equal the increase in taxes that will come if the city, state, or country tries to clean up its problem and decides to spend billions of dollars doing so (as China is about to in preparation for its bid to host the 2022 winter olympics, an effort that will cost about $7.7B using the exchange rate of August 16, 2015).

But the trials and tribulations don’t stop there. Rapid urbanization is also typically associated with a rapid increase in crime (though often temporary from a long-term perspective, this temporary increase can still last decades), pandemics (as nothing spreads airborne and waterborne bacteria and virii faster than density), taxation to pay for the necessary improvements to infrastructure and social programs, a quickly changing political and regulatory environment, and a greater potential for mass hysteria and riots. Rapid urbanization can bring with it dozens of damnations, each of which will directly and indirectly affect Procurement on a daily basis.

Sales and Marketing may do the dance of joy, but they really ought to be shot in the foot for doing so as the good can often be outweighed by the bad in the short term, and the amount of rapid adaption that Procurement might be forced to deal with may not be worth it.

A Few Reasons Why Your ERP is a Disaster Waiting to Happen

In our last post we said that If You Still Rely On ERP, You Could End Up in the Supply Chain Disaster Record Books, and we meant it. Over-reliance on outdated and antiquated ERP systems is just a disaster waiting to happen, and here are just a few reasons why in half a dozen supply chain areas.

Sourcing and Contract Management

A critical requirement of a multi-round RFX or multi-round negotiation is the ability to support multiple prices at different volume levels and price history. One of the biggest ERP systems on the market today still does not support this simple, basic, requirement. It’s crazy, but it’s true. And without the ability to store proper prices, volume breaks could be missed and millions could be lost.

Procurement

A critical part of Procurement is m-way matching between the invoice, purchase order, and goods receipt. And a critical part of procurement performance management is tracking each mismatch. How often does a supplier over-bill? How often does a supplier under-ship? This can only be tracked if there is a complete invoice history, but many so-called “modern” ERPs only allow for one version of an invoice. So when it is corrected, the history is lost. And a supplier’s true performance is never known. Performance that could cost you dearly if an under shipment results in a stock out that costs millions in revenue.

Logistics

A critical part of logistics is tracking not only order dates and received dates, but required ship-by dates, receive-by dates, and outbound ship-by dates to avoid missing customer requirements. Some ERPs can only track the date the PO was cut and the date the goods were received — that’s not enough. Another critical part of logistics is ensuring that each carrier has enough insurance to cover the replacement cost of the load, which requires tracking the cost of the load and the insurance coverage of the carrier. With respect to this, the best the average ERP system can do is allow you to look up the PO total and, if you are lucky, extract the last copy of an insurance certificate stored as a PDF in a blob or similar structure in the document store. No meta-data to tell you what’s in the certificate or if it’s even still valid — which could expose you to a huge liability.

Forecasting

Most ERP systems are still using 20 year old forecasting models, and look at what these models did for Cisco and Nike! Should you still be using them?

Compliance

Most of these systems were built before the introduction of acts like 10+2, REACH, SOX, and WEEE — acts which require you to track, report, and store certain data to maintain compliance with these acts. Compliance which is critical to avoid fines, penalties, seizures, [temporary] business closures, and even criminal charges. Compliance which is not maintained by ERP systems that aren’t set up to store all of the data required on an import/export form, track detailed BoM (Bill of Material) data to ensure acts like REACH and WEEE are not violated, and the detailed audit trails required to satisfy SOX.

Risk Analysis

While there are a plethora of risks that can not be predicted due to their nature (like natural disasters, geopolitical uprisings, etc.), there are a plethora of risks that can be predicted with high likelihood if they are monitored for. However, this monitoring depends on the availability of good data. For example, supplier failure can often be predicted if the organization monitors shipments, third party risk data, and market data. If shipments get progressively later, contain higher defect rates, and third party financial ratings for a supplier get weaker every month, that’s a sign of supplier distress and a potential bankruptcy, and it’s critical that the buyer assess the supplier’s health and monitor the situation. This will only be detected if the system tracks delivery dates and defect rates, third party data, and appropriate econometric models. However, all most ERPs track is good receipt dates and returns (but no meta data tying them to orders to calculate defect rates). No market data, no financial ratings, no modern econometric models. No way to detect imminent disaster.

And this is just a short list of ERP failings that could bring imminent disaster. To find out more about ERP’s shortcomings, if you still have not done so, (register for and) download the recent white-paper by b2bconnex on Why ERP is NOT Enough. The sooner you learn this, the sooner you can correct the situation and join the leaders with a modern supply chain.

If You Still Rely On ERP, You Could End Up in the Supply Chain Disaster Record Books!

Back in 2006, Supply Chain Digest put out a paper summarizing the 11 greatest supply chain disasters, which it revised in 2009. (Download from SCD.) They are summarized in the following table:

Company Impact Cause
Foxmeyer Bankruptcy ERP and Automation Failure
GM Billions Lost Robotics
WebVan Bankruptcy ERP and Automation Failure
Adidas Forecasts 80% off; market losses persist for years ERP and Automation Failure
Denver Airport Late opening; PR fiasco Automation Failure
Toys R Us 1000s of orders unfulfilled; huge PR fiasco Serious Understaffing
Hershey Foods 150M+ revenue loss; 19% profit loss; stock plummet ERP and Warehouse failure
Cisco 2.2B inventory write-down; 50% stock plummet ERP and Inventory Forecasting
Nike 100M Profit shortfall; 20% stock drop ERP and Inventory Forecasting
Aris Isotoner Fire Sale Outsourcing Snafu
Apple PR Black Eye and Major Market Share Loss Conservative Inventory Strategy

See a commonality? Six (6) of the Eleven (11) failures are directly or indirectly caused by an ERP fiasco. Three (3) are due to poor inventory planning and/or management and ERP (integration) failures, and three (3) are due to warehouse automation failures (and include an ERP integration failure or management component). Technology has been the leading cause of major supply chain disasters, and the technology has always been either the ERP, or dependent on the ERP.

If this does not convince you that ERP is NOT Enough and an over-reliance on your ERP system is just a supply chain disaster waiting to happen, I don’t think anything will and will advise that if you are religious and pray, start praying for a smooth supply chain today. (Not that the doctor thinks praying will help, but nothing will as long as your organization over relies on the ERP.)

For a detailed discussion of Why ERP is not Enough, I suggest, if you have not already done so, downloading the linked white-paper by b2bconnex today (registration required).

As the doctor pointed out in his last post, not only does the paper address some critical ERP shortcomings in detail that you need to understand, but it also helps you understand why you need, depending on your business, ether a modern sourcing platform, a modern procurement platform, or, particularly in manufacturing, a modern supply chain communication and collaboration platform that handles all critical communications. And it does so without any reference to any particular platform and contains no marketing spiel, a rarity for a vendor white paper today.

So go ahead and download Why ERP is NOT Enough today and begin your journey to the adoption of a modern supply management platform so that your organization does not end up on the top 11 supply chain disasters list due to an inevitable ERP failure. (Like a natural disaster, it’s not a matter of asking “if” it will happen, it’s a matter of being prepared for “when” it will happen.)

ERP is Not Enough!


When your organization was sold its Enterprise Resource Planning (ERP) solution suite back in the 1990s or 2000s, it was probably told that the ERP suite was the answer to all of its information management problems and it would be the last suite the organization would ever buy. As the evolution of Manufacturing Resource Planning (MRP) software — which was focused primarily on product planning, manufacturing, and inventory management — ERP was supposed to address all of the weaknesses in the MRP software as well as give Sales and Marketing, Finance, and Executive Management visibility into operational status. Specifically, ERP was supposed to handle sourcing and procurement, receiving and distribution, sales forecasting and integration into production planning, and provide a solid foundation for accounting and finance. ERP was supposed to provide the organization with a real-time end-to-end view of core business processes that could be used to effectively monitor, manage, migrate, and market the business. ERP was supposed to be delivering on the single system promise that you were waiting for since the dawn of MRP. But it didn’t.

Why ERP is not Enough by b2bConnex (Registration Required)

Those of you who are regular readers know that SI rarely promotes vendor-authored white-papers, as many turn out to be more marketing fluff than solid content, but every now and again SI finds a real gem, and this paper is one of them. Not only is it a solid, factual, educational piece, but it’s echoing a message that SI has been promoting for years (and often while screaming at the top of its lungs). ERP is Not Enough, and the continued over-reliance on ERP is why so many organizations, especially in manufacturing, are struggling to find efficiency, savings, and value in their supply chains.

Even though Sourcing and Procurement platforms are now mature technology, the number of your peers that have still not adopted modern platforms is still quite high. That’s why a number of new SaaS-based start-ups are still finding success a decade later with streamlined, on-line, implementations of sourcing or procurement modules that are almost a commodity at this point. When a company finally realizes the value, SaaS allows for a quick, easy, low-cost entry point to a modern platform.

And a modern platform is needed. Just because your ERP might support document exchange, that doesn’t mean it supports online tenders. Just because it supports price quotes doesn’t mean that it can maintain detailed price history and do trend analysis. Just because your ERP can store a contract doesn’t mean that it can store all of the delivery schedules, rate tables, and agreed upon performance metrics in formats that can be easily accessed, queried, and automatically compared to invoices and time sheets. Just because it can store a PO, that doesn’t mean it can store a full requisition and approval history. the doctor is sorry to say that he knows of more than one company that has spent over a million dollars trying to implement a good e-Negotiation platform or contract management platform on an ERP, only to fail when they could have bought a best-of-breed solution for 1/10th of the cost.

One has to remember that where ERP is concerned:

  • it is still rooted in MRP & on-site inventory management
    and distribution, logistics and supply chain optimization was never in the core vocabulary
  • it is all about reporting
    but supply chain success is all about analysis and actionable data
  • it is designed around an old-school data store with a rigid format
    and not a modern, extensible, workflow-based Master Data Management model
  • it was based on the concept of an activity journal
    not around transition management for an evolving supply chain
  • it is internally focussed
    but supply chain management needs to be externally focussed

This paper addresses all of these issues in detail, outlines the shortcomings of an ERP, and helps you understand why you need, depending on your business, a modern sourcing platform, a modern procurement platform, or, particularly in manufacturing, a modern supply chain communication and collaboration platform that handles all of the communications necessary between a provider of consumer or manufactured goods and their product and component suppliers from the initial tenders through the delivery of the final goods receipt and invoice pair when the contract has been completed. Moreover, the paper does this without any reference to any particular platform or marketing spiel and really helps you understand why your ERP is not, and will never be, enough and why you have to move to modern Sourcing / Procurement / Collaboration platforms, depending on your vertical and needs.

If you are not on a modern Supply Management / Supply Chain Collaboration platform, the doctor strongly encourages you to register for, and download, Why ERP is not Enough today and spend a good deal time of understanding the issues addressed. The sooner you understand what you need and why you need it, the sooner you can acquire the right platform and supercharge your supply chain. All the technologies you need to do so are out there waiting for you. You just need to know what to look for!