Category Archives: Miscellaneous

Supply Chain Direction II: Collaboration is Key

… And a study underway by Craig Hill at Georgia State University may prove it. In his presentation Performance Aspects of Collaborative Planning Forecasting and Replenishment (CPFR) Technologies, Dr. Hill is studying the effects that the implementation of CPFR has had at over 110 compaies that have employed CPFR for over five years. The premises of CPFR is that it (1) decreases inventory, (2) increases customer satisfaction, (3) positively affects stock price, (4) improves performance, and (5) increases sales. Dr. Hill’s preliminary results seem to indicate that inventory turnaround is increased (by 16%), return on assets is increased (by 12%), and average sales are increased. Increased inventory turnaround decreases inventory levels which increases savings (and decreases overall costs), return on assets positively impacts company performance (which likely increases stock price), and increased sales are increased sales. In other words, Collaboration is Key.

On a related note, eyefortransport’s 2nd Supply Chain Directions Summit takes place three weeks from today. For more details, see my earlier post.

Everyday Lessons from Operations Research

Although many of the presentations at the INFORMS Annual Meeting in Pittsburgh are very academically focused, Mark S. Daskin’s Presidential Address Everyday Lessons from Operations Research had a lot of great lessons for those of out us in the field. The following are Mark Daskin’s Top 13 lessons from operations research:

  • 13. Service Gets Worse as Utilization Increases
    Think about customer service lines.
  • 12. Performance Degrades as Variability Increases
    … but variability can be reduced through risk pooling. Think about global sourcing.
  • 11. Variability is necessary.
    Relationships cannot be determined without variability.
  • 10. Expect the unexpected in today’s world.
    There are 300 M people in the US, which means 800 K will be at least 3 standard deviations from the mean in any study you are conducting. There are 1 B people in China, which means at least 2.7 M will be 3 standard deviations from the mean. Globally, there are over 400 K people over 4 standard deviations from the mean in any study you are conducting.
  • 9. If it is too good to be true, it probably is not.
    Learn from experience – and samples.
  • 8. Life is full of errors.
    Both Type I (false positive) and Type II (false negative) – and there is no free lunch. As you decrease one type of error, the other type of error increases – unless you want to pay for more data.
  • 7. A good decision can result in a bad outcome.
    C’est la vie.
  • 6. If you are not using all you have, don’t pay for additional quantity.
    It’s not savings if the item perishes in industry.
  • 5. You can never do better by adding a constraint.
    Adding a constraint can never improve the objective function – that’s optimization.
  • 4. Keep it Simple
  • 3. Think about problem formulation
    • What do you know?
    • What do you need to decide?
    • What do you need to achieve?
    • What inhibits you?
  • 2. Look for compromise solutions
    Sometimes optimal is not good enough – do a tradeoff and robustness analysis before accepting a solution since your optimal solution may be very susceptible to change.
  • 1. Data is not information.

Six Sigma IV: Achievement

The recent Insight from Aberdeen Group, “Technologies Enable Six Sigma” (now Aberdeen Access Members Only) does a great job at demonstrating why we need Six Sigma, or 99.9997% accuracy, and why 99.9% accuracy is not good enough. At a 99.9% quality level, in the United States alone, this would mean:

  • no electricity for nearly an hour each month
  • unsafe drinking water once per week
  • 2,000 lost articles of mail per hour
  • 2 short or long landings at most airports each week
  • 20,000 wrong drug prescriptions per year
  • 500 wrong surgical procedures a week

The insight also makes it a point to note that Six Sigma is not just for manufacturing, since the metrics can apply universally. Whether you measure bad parts coming off an assembly line, or errors made in processing orders, a process is a process and a defect is a defect.

Based on a recent study, the insight notes an interesting fact – those companies that measure PPM (parts per million) and DPMO (defects per million opportunities) achieve better performance than those that simply measure defect rates in terms of %good or %defective. Although none of the Best in Class performers achieved true six sigma quality, those that measured PPM and DPMO were very close to five sigma performance (99.98%).

Why? I think it is partly due to the lessons offered in the Aberdeen Insight, “what gets measured, gets managed” and Six Sigma relies on accurate and accessible data which requires the proper technology, and partly due to psychology. We’ve been trained by the media’s overuse of statistics to accept 99% as very good and 99.9% as excellent and 99.99% as absolutely fantastic. After all, Ivory is 99.99% pure, and we’re supposed to accept that to be as good as it gets, but the reality is this is barely five sigma, which we know to be unacceptable in any critical operation.

As implied in the lessons learned, Aberdeen found a direct correlation between the application of technology and Best in Class performance. In all but one category of IT solutions (non-conformance reporting), adoption rate increases with performance. Although this does not decisively prove cause and effect, there is a strong correlation between top performers and supporting technology, and what’s more important – a detailed cause and effects analysis or being in the “better” pool?

Of course, six sigma is more than just measuring defect rates. Six Sigma employs a structured approach to problem-solving and requires the management of projects which have the potential of having significant impact on the business. To maximize the benefits of these projects, it is necessary to provide an infrastructure that facilitates the adoption of Six Sigma across the organization, manage individual projects, share information effectively and manage financial information in such a way as to gain acceptance on an enterprise-wide basis. While, strictly speaking, tools such as spreadsheets and generic desktop tools, and even pencil and paper, can assist in early stages of Six Sigma implementation, standardization and collaboration are necessary to achieve the next level of benefits.

By implementing project management tools that support collaborative efforts and provide workflow automation, Six Sigma practitioners are able to focus on the analytical aspects of the methodology to drive to true results.

For more information on Six Sigma, I refer you back to parts I through III of the series which appeared on e-Sourcing Forum [WayBackMachine] back in September.

  • I: An Introduction
    II: Innovative Quality
    III: Value Based Strategic Sourcing

Your Favorite Weasels …

Last Month I was kind enough to remind you that Scott Adams had begun his annual weasel poll.
The results are in! Check them out! Your favorite weasels are:

Category Winner!
Weaseliest Pundit/Reporter Michael Moore
Weaseliest Celebrity Tom Cruise
Weaseliest Sports Person Barry Bonds
Weaseliest Politician George W. Bush
Weaseliest Country United States
Weaseliest Organization Republican Party
Weaseliest Company Haliburton
Weaseliest Industry Oil