Monthly Archives: September 2011

How can we minimize our costs while maximizing the use of our current assets?

Modelling, Simulation, and, most importantly, Decision Optimization … and I’m very glad to see that the ISM recently ran an article in Inside Supply Management on “Improving with M&S”. Because, as the article points out, once the behaviour of a system is understood, supply managers can realign assets with the intent of finding the arrangement that will yield the most optimal measures of performance.

Furthermore, as the article points out, modelling, in its most basic form, is the creation and arrangement of representational elements that approximate reality. Simulation is the potential interaction, or playing out, of these elements over time. And optimization is the application of rigorous analytical techniques to a well-defined scenario to arrive at the absolute best decision out of a multitude of possible alternatives in a rigorous, repeatable, and provable fashion. Together, the technologies can be used to determine how to balance costs and resources.

The article gives some great tips for novices in MOS (Modelling, Optimization, and Simulation). Specifically, it notes that:

  • the goal is not to mirror the real-world system in all its detail but to represent those aspects that are expected to meaningfully affect the performance variables of most interest
    as it is impossible to model everything, there is a need to focus on what is relevant; for example, there may be 50 different cost elements in a breakdown of a component down to raw materials, but if 10 of them represent 80% of the cost, and only 5 of them are variable, focus on those 5 and wrap the other 46 into one
  • if the model and simulation are producing behaviour similar to the known real world, then the model most likely is an appropriate, or valid, reflection of that real-world system
    if the model works well, don’t second guess it; unknown is unknown and trying to guess the unknown doesn’t make it known
  • we learn through experimentation
    but experimenting with the real system is costly, counterproductive, and could meet organizational resistance
  • the process of modelling and simulating a real-world system assists in identifying major system strengths and weaknesses
    strengths which can be leveraged through targeted interventions and weaknesses which can be overcome through appropriate system redesign; the process of identifying strengths and weaknesses and virtually experimenting with changes to the system allows analysts and supply managers to see unintended second- or third-order consequences that might not have been readily apparent otherwise
  • selecting and analyzing various supply management activities and processes can be crucial in improving efficiencies and performance
    if the organization doesn’t know where its performance can be improved, then it will not be able to improve its performance

All great tips and all reasons why modelling, simulation, and optimization should be used by each and every Global 3000 organization.

Education is Getting Worse by the Day

According to a recent article in the Washington Times which indicates that scores show students aren’t ready for college, only 25% of students cleared all of ACT’s college preparedness benchmarks. This says that 3 out of 4 graduates are not prepared for college and will likely need to take at least one remedial class. This is appalling!

Not only are six of seven American adults not “proficient” at math (as per an article on “why American consumers can’t add” (MSNBC)), but one in four can’t even handle College level English! (Despite the fact that at least four in five households speak English as a first language!)

How did public education get so bad? And how will we ever solve the talent crunch without more highly educated graduates?

Near-shoring: Advantage Mexico

As per this recent article in Logistics Management on Near-Shoring/Right-Shoring Strategies, a recent poll of 80 C-level executives across more than 15 industries by AlixPartners found that 63% of senior executives chose Mexico as the most attractive locale for re-sourcing manufacturing closer to the U.S. market. With its geographical proximity and recent improvements in transportation services between the borders, Mexico is regaining its attractiveness. If 33% of senior executives are going to re-shore within the next three years, Mexico could be on track to regain its former glory. Especially since its attractiveness ranking by these executives was more than seven times that of Central America and Brazil.

Why is Mexico more attractive than the BRIC? In addition to near-shoring, lower freight costs, and improved speed-to-market times, as cited in the article, it’s also lower cost. Costs in the BRIC are rising aggressively. Manufacturing is getting more expensive by the day in China. Services are getting more expensive by the day in India. Raw Material costs are rising in Russia. And inflation in Brazil is over 6%.

Plus, there are the time-zone advantages, cultural alignment with the rest of North America, workforce passion, and free trade zones. Security is still a concern, but the number one cause of death for foreigners in Mexico is still car accidents, not crime. Crime has doubled since the economic crisis of 1994, but most of the crime is non-violent. Unfortunately, “organized crime” (gangs and cartels) is still very violent and a real concern, especially in the northern border region. However, near-shoring to other regions of Mexico is, on average, not much more of a security concern than Home-Shoring in the more dangerous US cities, and a viable alternative.

Better Data On Its Own Will Not Ensure Success

A recent post over on the HBR Blogs by Daryl Morey that stated that “Success Comes From Better Data” is on the right track, but not quite right. Better data is a necessary condition for success, but not a sufficient condition. In order to make good decisions, you need:

  1. Better Data
  2. Better Tools
  3. Smarter Analysts

When Daryl says that you need raw numbers, not the people and programs that attempt to make sense of them, he’s missing the point that raw numbers need to be distilled into information through the use of good tools that can be distilled into knowledge through smarter analysts. Without the right knowledge, a business leader will not be able to make the decisions that lead to success. While it is true that real advantage comes from unique data that no one else has, this data must be transformed into knowledge. It’s a Knowledge Economy, not a Data Economy.

VMO Best Practices or General Organization Best Practices

A recent article over on SIG on “How to Build A World Class Vendor Management Organization” noted that the most important element of success was execution. Execution that involves the:

  • identification and allocation of appropriate resources (people)
  • identification and implementation of enabling technology
  • development of policies in collaboration with key stakeholders
  • documentation of processes and workflows for key programs
  • application of segmentation strategy to align resources
  • pilot strategy and program that supports Business Units and Suppliers
  • testing, refinement, and redesign of processes as required
  • communication, communication, and communication

This is all good, and everything that should be done in the establishment of a Vendor Management Organization, but an organization would do the exact same if it was establishing a Global Procurement Organization. Or if was establishing a Shared Services Organization. Or if was establishing a Consulting Services Organization. No matter what organization is being established, it will not be successful without:

  • people who know what they are doing
  • technology to support them
  • policies to guide them
  • processes to enable them
  • strategies to make the best use of resources available
  • support from affected Business Units (which is won through incremental wins)
  • adaptability to changing circumstances and
  • constant communication

In other words, the article contained good advice, but nothing specific to VMOs.

So what is the real key to a good VMO?

A focus on the vendor. It may take different forms, but the vendor, and its success, should come first as vendor success enables organizational success.