Monthly Archives: March 2009

Supply Chain Performance Improvement For the Beginner

Industry Week recently ran an article on “supply chain performance improvement for the rest of us” that is a good read for any organization just starting down the supply chain improvement path. The article outlined four strategies which can be used to jump-start a performance improvement initiative in an organization that is not best-in-class, or, in layman’s terms, your average organization. (Less than 20% of organizations are truly best-in-class, and the reality of supply chain improvement is that you need to do it in stages and trying to bite off too much too fast will just lead to failure.)

  1. Stop Obsessing Over Six Sigma
    It’s not the methodology, but where you apply it and how you use it to better your operations. It’s about leveraging the chosen process life-cycle improvements to focus on customer-visible process improvements, not about the processes themselves. Eventually you’ll want to optimize every process to the nth degree, but not when you’re starting out. An 80% improvement across the board is much better than a 98% improvement on one process that only affects 10% of production. After all, would you rather be 1.8 times as productive as a whole or 1.198 times as productive?
  2. Forget About “The Perfect Order”
    The “Perfect Order” is Supply Chain Nirvana, and every budding Buddhist knows that this is a lifelong journey. You need to start by improving your basic processes, which will minimize errors, and managing the mistakes (or order exceptions) better when they do happen. Install visibility systems that allow you to identify and deal with exceptions as soon as possible and the process improvements this will inevitably lead to will result in a significant drop in errors almost overnight.
  3. Pay Your Suppliers Better
    This will save your company money. Not only will it strengthen vendor relations, which could lead to happy suppliers willing to share insights and best practices and go the extra mile, but it will reduce the amount of capital the supplier has to borrow, which usually comes at a high cost. This reduces the supplier’s cost of capital, which reduces the supplier’s overhead, which decreases the mark-up the supplier has to charge, which enables the supplier to offer early payment discounts or charge you less (at renewal time).
  4. Don’t Talk to Customers
    Stop wasting time haggling over credit and other meaningless disputes. Automate the dispute resolution process and spend time listening to your customers’ product and service interests and business process priorities instead. That way you can find out what your customers really want and improve your offerings accordingly.

Should You Provoke Your Customers?

A recent Harvard Business Review article states that “in a downturn, (you should) provoke your customers”. I have to say that even after reading the article to understand where they are coming from, this scares me a bit. It’s one thing to provoke a sleeping bunny, but what if you provoke a sleeping bear? While the first might spring into action, the latter might take a chunk (of business) out of you (by deciding that you’re too pushy to do business with and simply ban you from future opportunities).

While a smart seller will help their customers see their competitive challenges in a new light, they’ll do it in a manner that illuminates the opportunity and inspires the customer to take cost saving actions, not in a way that provokes the customer into an unpredictable frenzy that could cause the customer to make a quick decision that isn’t necessarily right for them. And while it’s true that this could result in a short term gain, in the form of a sale, for a seller, it could also lead to a long term liability if the customer isn’t willing to follow through in the operational execution required to make the solution a success. If the solution ends up tanking, either because the customer failed to redesign their processes and execute accordingly or because the solution wasn’t right for them, and does nothing but cost the customer time and money, the customer could get irate, go public, and start a fiasco that will lead to long term revenue loss.

Maybe it’s just me, but I’d prefer a level-headed customer who saw the advantages, that were clearly laid out in the new competitive landscape the solution created, the solution had to offer to one that was provoked into buying the solution. I just see too many opportunities where “provoking” a customer could go wrong. What do you think?

Why Some Companies are Being Dumb

A recent article in Strategy + Business attempted to address why some companies are making the wrong moves. Needless to say, after my recent dumb company and dead company series, it caught my attention.

According to the article, some of the reasons companies are making the wrong moves are:

  • Market Optimism
    They think they’re better off than their competitors and that the crisis will serve to elevate them by harming their competitors more.
  • Overestimating their Financial Strength
    They are not accelerating their cash generation and, more importantly, cash preservation efforts.
  • Pulling Back on M&A
    When now is the best time for strong and stable companies to snatch up struggling companies with innovative products.
  • Mistrust of Senior Executive Leadership
    A recent survey by Booz & Company in December of 2008 found that two out of every five respondents were skeptical of senior executive plans, which, of course, affects their ability to carry those plans out.

I don’t think it captures all of the reasons, from what I’ve seen and heard over the past few months, but it’s certainly an important set of mistakes to avoid.

Now That Your Demand Planning Strategy Is In Play, Improve It!

In our last post on the topic, we reviewed the story of how Linksys improved forecast accuracy at the SKU level by 350% with better demand planning, as told by Robert Bowman in Free The Enterprise! This emphasized the need to put a good demand plan in place and illustrated the importance of good demand planning strategies.

One key component of a demand planning strategy is a demand sensing strategy that will let you know when market conditions are varying from forecasted predictions in (near) real time, allowing you to update the forecast before you stock-out or, even worse, get stuck with thousands of units of obsolete inventory. The recent edition of the The VCF Report had a great article by Lora Cecere of AMR on Forecasting Recovery Strategies and “Seven Ways to Sense Demand and Predict the Upturn” that you should read to give you insight into how to tweak your demand sensing, and associated demand planning, strategies for best results.

Lora offered the following seven tips to help your company sense demand, and even predict the upturn, so that you can make timely decisions and reap the profits that will be yours for the taking, if you are ready.

  1. Make Better Use of Downstream Data from Retailers
    POS (Point-of-Sale) and inventory movement data can be used to shorten replenishment times.
  2. Implement VMI For Your Customers
    This will help you to better sense true demand and avoid stock-outs as you will have immediate access to channel wide data.
  3. Use Downstream Data from Distributors
    This will give you visibility into the reseller market and a better picture of overall demand.
  4. Move to Active Forecasting
    And update your forecasts weekly instead of monthly for short-life products and monthly instead of quarterly for longer-life products.
  5. Tap into Sales Contract Data
    This is critical for effective planning of make-to-order and configure-to-order supply chains.
  6. Actively Use Market Data
    Channel data and third-party data can be used to sense channel trends and predict when a certain product or service category is about to take off in the marketplace.
  7. Sense Service Requirements
    Link your demand-sensing activities with your strategic service management planning for better results.

For more details, see the article.

People versus Technology

Consider this excerpt from a recent article on “The Big Picture” in Industry Week:

We reviewed several conveyor delivery systems and settled on cutting-edge technology. It eliminated so many positions that the payback was very quick. Parts were routed through the department and into a sorting area to be automatically picked … we were really proud of this engineering marvel. … Then, reality started to set in. We weren’t ready for cutting-edge technology. It required engineers to program and mechanics to maintain all the little switches and gates. … The downtime had gotten so bad that we positioned full-time mechanics on the line. … We were missing cycles on the main assembly line and having to manually run interiors over to catch up with product. There was considerable capital investment and lots of sweat equity.

So the company brought in TBM and Shingijitsu lean consultants and started to study the Toyota Production System. They started with a week long kaizen event focussed on one component that resulted in a U-shaped cell delivering JIT to the assembly line that worked nicely on 90% of products. Additional kaizen events totally changed the department layout to a smaller footprint that verified the methodology. Then the plant ripped out the high-tech conveyor systems and performance improved while the production footprint decreased almost 45%. As a result, the plant was able to in-source a regional distribution center that generated additional savings and created synergies across the supply chain.

Moral of the Story: technology is good, the right technology is better, but nothing beats a great team with the right training and the empowerment to do what needs to be done.