Category Archives: Manufacturing

The Time for One Vision is … Not Any Time Soon

 

Today’s guest post is from Eric Strovink of BIQ.

 

 

the doctor has asked “Has the time for one vision arrived?” The point of his post is contained in the last paragraph1, and boils down to whether “Best of Breed” solutions in the supply chain space are “good” or “bad” from an “integrated data” perspective.

It is certainly the case that there are a lot of software solutions that boil down to nothing more than a custom database fronted by a UI and a report writer. Such systems are rather easy to build; in theory, they can be built (as the doctor has pointed out in jest previously) using a VBA programmer and a Microsoft Access database. Jesting aside, home-brew solutions can exceed both the functionality and usability of so-called “enterprise” solutions. For example, Access-based 1990’s-era spend analysis leave-behinds from consulting organizations such as the old Mitchell Madison Group are still running in some large companies today, and, I daresay, are still superior to many current solutions.

Since there’s a pretty low technical bar to producing YAS (Yet Another Solution), there are grounds for hand-wringing when trying to keep track of them all, and of all the disparate data they are managing.But it really doesn’t matter whether a software product is built by in-house resources using Access and VBA, or by an international team of professional programmers using J2EE/Flex/Silverlight/Ajax/etc. and delivered via the browser, because the answer to the doctor’s question is simple:

Until there is a major, earthshaking change in the technology of database systems, the notion of an “integrated” enterprise-wide data store is pure fantasy.

Why? Because, as the post points out, “each data source [is using] a different coding and indexing scheme, [and] there is no common framework that connects the applications.” And that’s all she wrote, folks. You can’t store egg nogg in a fruit basket. It’s just not going to work.

Now, kudos to Coupa and others for “opening their API” (meaningful for programmers, not so much for ordinary humans) and so forth, but there is at present no way to integrate disparate, unrelated data into some centralized data store, without losing all the detail in the process. I don’t care if it’s all “spend” data, either. Slapping a label on something doesn’t make it homogeneous. I’m a bit of an expert on spend data, and I can assure you that spend data comes in all shapes and sizes and is certainly not homogeneous, whether you run an e-procurement system or you do not.2

And, of course, both old and new database vendors have been claiming for years to be able to integrate disparate data sources across the enterprise. Sure, if you want to join a few records across disparate databases that share common keys, there’s demo-ware that they can show you. It works great. But try a multi-way join across millions of records across disparate databases, and I’ll join you for a beer in the year 2025 when the query finishes.

So, I’ll steal the thunder from the “future post” mentioned by the doctor and jump right to the conclusion:

  1. Don’t worry about “integrating” data, because it’s not going to work the way you hope it will. At best, you will end up with inadequate compromises and uselessly generic data, like a design-by-committee spend cube that is shelf-ware after six months.
  2. Do worry about being able to move data easily in and out of the systems that you have. Don’t allow vendors to “lock up” your data; you should be able to change platforms easily, whenever you want to.
  3. Do worry about flexibility and adaptability in your analysis system. You should be able to operate it yourself, for example. If your data is locked up behind some SQL database that only IT drones can access, it isn’t doing you any good at all.
  4. Do worry about being able to move data from [anywhere] to your analysis system, quickly and easily.3

Let’s see what the doctor thinks, when he gets around to it.

1Apparently the doctor has never taken Journalism 101. But we can forgive him, since he doesn’t pretend to be a journalist.

2There are new ideas like “semantic database systems”; but a quick glance at recent history will show how well that works out in practice (Jason Busch over at Spend Matters, for example, made the mistake of drinking the semantic search Kool Aid with the now-defunct Spend Matters Navigator).

3Also, it’s important to clarify the notion that “real time” access to data is required for procurement decisions. No procurement decision needs to be made in real time. Is this a Hollywood science fiction movie where we need to dodge laser blasts from Tie fighters zooming in from all angles? No, it’s the real world, and decisions can and should be made thoughtfully and carefully. When the doctor says “real time,” I would hope that he means that there should be access to the data and answers to questions without waiting a week or a month for some analyst to write software.

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Question: Is There a Place for ESO in Your Supply Chain?

A recent article over in Global Services on “bridging the divide” indicated that there is a rising demand for ESO, Engineering Services Outsources, but a shortage of talent. In fact, they claim this is a 60 Billion market. I’m not sure I agree.

While outsourcing has been continuing to move up the value chain, from back-office functions to customer support and service to system implementation and configuration, for your average manufacturing or consumer goods company, engineering services are not only at the top of the value chain, but represent the core of the company’s IP and operations. (And while some would argue marketing is equally as valuable, since there’s no value produced if the product doesn’t sell, that is typically augmented by, or outsourced to, specialist agencies, who don’t have anything without the unique product or service, built by the engineers, to back them up.) As a result, I’m not sure that most companies are ready to even consider Engineering Outsourcing as a possibility.

Furthermore, if your company is built around the manufacture or production of goods, moving to ESO isn’t as easy as simply augmenting or replacing an internal team with an external team. If you’ve been doing engineering internally, then you have a considerable amount of money invested in assets to support engineers — equipment, hardware, software, and specially designed or outfitted locations. What do you do with all that? The software is licensed to you. The hardware and equipment are installed at your location. And the only way you’re going to get what your building is worth (as you would have invested a considerable amount in the power grid, specialized hookups, etc.) is if you can find another company making a similar product who’d be able to take advantage of the infrastructure.

And then there’s the IP issue, especially if you’re outsourcing internationally. Yes, you own the design, but the end customer isn’t going to buy a design. They’re going to buy a product. And if the outsourcing firm borrows from your IP to make a competing product at a lower price point, then your potential customer base could shrink considerably, especially if they get their product out first (possibly licensed through a related, but distinct company). And while you could probably get an injunction pretty quick in your home country (if it has good IP laws), how much are you going to be able to accomplish in the rest of the world in a short time frame?

In other words, while I can see the model starting to take off with new start-ups who can’t afford the infrastructure or who can’t afford to hire a whole team when the immediate plan is to produce a single product and see if it takes off (or with companies trying to quickly expand into new markets with similar challenges), I believe it will be a while before ESO takes off in big established companies who already have large teams in place.

Does anyone have a differing opinion?

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Lean: Do You Know What it Means?

Now, I thought that the definition of lean was relatively well understood among lean practitioners while the implementation was not, but after reading this recent piece in Industry Week on “Lean Confusion”, I’m wondering if it’s not the other way around?

According to the author, people are confused — both about what defines lean and how to implement lean. As an example, she uses the reaction to an article that the Wall Street Journal published in July that outlined component shortages and Nissan Motor which concluded, that, in part “the drawbacks of lean manufacturing methods” were to blame, augmented by an overstretched global supply chain. It’s a good example — Apple’s not about lean and, as one proponent countered, it’s obviously yet another example of shoddy reporting from the WSJ where the supply chain is concerned.

So what is lean? Simply put, it’s maximizing customer value while minimizing waste. It’s not any particular set of processes, methodologies, or technologies — those are just tools of the trade. Lean is not just the tactical implementation of a new system or process, it’s the strategic redesign of your operation to maximize value while minimizing waste. That might involve new systems and processes, but that’s not lean. Lean is a strategic mindset, not a tactical exercise.

It’s a good article that makes a good point. Check it out.

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(The) Strategic Sourcing (Debate Part V): My 2 Cents

Today’s guest post is from Sudy Bharadwaj, ex-analyst extraordinaire of the Aberdeen Group, former VP of MindFlow, former CMO of Informance, and, most recently, a star at Inovis.

There is lots of debate in the blogsphere about what is strategic sourcing — whether or not it’s dead, alive, or a zombie. Over the past several months, discussions with consulting firms, large/small enterprises1, and technology vendors has revealed a few items:

“It’s called Strategic, but its not used Strategically”

Strategic sourcing, for the most part is seen as a procurement function, and typically, a transactional process leveraging tools such as RFx and Reverse Auctions in a tactical manner. Some large consulting firms who offer services, treat Strategic Sourcing services similarly and mainly are utilized as “staff-augmentation”. For manufacturing organizations, where materials can be 60%-80% of cost of goods, sourcing of direct materials needs to be approached as a Supply Chain challenge. Take the direct materials at the point of consumption and work backwards in the supply-chain several tiers, and understand costs. When the Supply Chain is worked cooperatively with suppliers, an organization can ask the question “How we reduce each others costs without adversely impacting each other’s margins”?

The Starting Point

One area missing in many Strategic Sourcing processes is a clear understanding of objectives of the process, the organization, or even a sourcing event. Is the focus on cost? A quick answer can be yes, but further details shows that enterprises are balancing cost with quality, supplier performance, and a host of other factors. A large consumer goods company recently awarded contracts which were 10% higher than the previous year to a different supply-base, due to very poor supplier performance the original supply base the prior year (late shipments). The objective of that sourcing event was shifting to more reliable suppliers while keeping the cost of the category within 15% of the previous year. Therefore, a 10% increase in costs actually exceeded expectations.

How are some enterprises leveraging Strategic Sourcing? They are leveraging strategic sourcing initiatives in other areas of their business.

Examples:

Product Design Process Understanding cost structures, supplier capabilities and/or metrics when in the design process and adjusting as needed pays large dividends, since changes later on during the product lifecycle can results in much higher costs or longer innovation cycles. A consumer electronics manufacturer recently had to eliminate a product launch, due to the fact that a critical component, which was cost-effective at lower volumes, was more expensive at higher volumes, thus causing the product’s profitably to fall below acceptable levels.

Manufacturing Knowing which suppliers adversely affect production can be key in understanding qualitative factors (such as cost) vs. quantitative factors such as quality. If a specific supplier is 5% less expensive than others, but, due to inconsistent quality, causes lower yields, is that 5% in savings costing 10% in other costs such as product re-do’s, overtime, or waste?

Supply-Chain Strategy. By having extended supply chains, organizations now off-load much of development and manufacturing of their products to third parties. Should organizations take back some of this manufacturing, perhaps a final assembly step, in order to drive cost savings, perform better customer satisfaction (by offering custom final assembly), or achieve other objectives?

Is Strategic Sourcing Dead?

For some organizations, it may as well be, since top-performers leverage Strategic Sourcing in manners described above, or in other ways, thereby outperforming their industry peers. These top performers also take a multi-year view. For example, in year 1, develop an understanding of the cost structure of key materials or components. In year 2, leverage this knowledge and work with those suppliers who can attack the key parts of cost, lowering the overall cost of a product, thus increasing profitability, or maintaining profitability as the organization faces price-pressures. In year 3, the organization may start to drive out cost by (1) aggregating specific key components across it’s supply-base, (2) taking positions on these components in commodity markets, and (3) requiring the supply-base to purchase these components from the commodity positions.

Thanks, Sudy.

1 Primarily Manufacturing firms in a variety of industries: Hi-Tech, CPG, Process, Oil & Gas, Pharmaceuticals, Discrete Manufacturing, etc.

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Want to Fail Faster? Automate it!

This recent article in the McKinsey Quarterly on “a better way to automate service operations” nailed it: processes and work practices are best designed and implemented before companies roll out the new IT. Otherwise, the COO will walk into the field operations control center after spending millions on a new automated scheduling and dispatching system (and over a year implementing the software and installing the hardware) only to find that response times have not improved, and the number of jobs each engineer handles in a day has not increased.

This experience is all to common for leaders of service operations organizations that manage large groups of remote or distributed employees, including those that have made multi-million dollar IT investments in areas such as automated dispatching, schedule prioritization, workflow automation, and performance management. This is because these systems require processes and work practices different from those used in non-IT enabled situations.

This means that before a company implements a new service management system, the company not only has to sit down and baseline its current operations, but determine how these processes need to change in order to appropriately utilize the capabilities of an automated system. This is because best practices developed over the years to insure that manual processes don’t break down tend to be over cautious due to the limitations of the average person to manually schedule hundreds, or thousands, of resources across thousands of jobs — limitations that today’s software doesn’t have.

To succeed, a company needs to go back to square one and define the goals of its service operations, the resources it has available, and the equipment at the resources’ disposal. It has to throw away all of the old rules and constraints and be sure to only define true constraints (an engineer is only available 8 hours a day, service for tier 1 contracts must occur within 24 hours, etc), not perceived constraints (an engineer can only handle two calls a day, the repair must be by an engineer at the closest office, etc.). And then it has to trust the system which can optimize across thousands of variables.

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