Category Archives: Manufacturing

Consumer Sustentation 74: Demand Planning

Demand Planning is a damnation. Why? As per our original damnation post,

  • traditional demand planning models require historical data
  • traditional demand planning models require market predictability
  • traditional demand planning models require market foresight
  • traditional demand planning requires knowledge of the expected price point

And how often in today’s constantly changing consumer marketplace, with new product releases coming faster and faster (to the point where your phone, laptop, and music device is out-of-date by a whole new release within a year), do you have good historical data, market predictability, and foresight? And how often can you be confident in the price-point, as a skunk-works product release by a competitor between sourcing and sale can force a price reduction to prevent inventory sitting on the shelves indefinitely.

So what can you do? (Besides burying your head in the sand like an ostrich?)

1. Get as much market data as you can.

Collect as much data as you can on your competitors imports, sales, and revenue using publicly accessible import data, analyst data, and company annual reports. It won’t be accurate, but with enough data you can often identify better trends than you could on the most similar product in your own inventory (which might not be similar, or recent, enough to be sufficiently relevant).

2. Have third parties conduct surveys on your behalf.

Sometimes the best way to gauge a market forecast is to actually conduct customer surveys and have a third party use the data to estimate demand for you. If you have no clue, the best thing you can do is admit it and get an expert to help you come up with a realistic demand forecast range.

3. Don’t focus a number, focus on a range and a potential rate of ramp-up or ramp-down.

If you know the demand is expected to be in the 100K to 200K units a month range, and the demand could double overnight, then you know that you need to contract for the low-end, but with a supplier that could ramp up to double production in a matter of weeks if necessary. And you have to negotiate a contract that allows orders to escalate, with pre-defined increases if the supplier is forced to work overtime (so you don’t get any billing surprises or animosity down the road).

4. Keep on top of sales data in real-time.

Be sure to get at least weekly PoS updates, and re-run the projections on a regular basis to detect an upswing or downswing early, so that you don’t get caught with your pants down, or, even worse, your pants off.

If you follow these tips, then you can get a reasonable grip on demand planning while your competitors flounder with the flounders.

Boost Your Procurement Value Engine

As per our last post on the subject, Procurement does not exist to buy stuff (which was its origins, but thanks to the Internet, everyone can buy stuff), but to provide value to the organization. But the identification of organizational value is not always straight-forward. Every organization is different, and every Procurement function has a different level of organizational maturity. As per the classic Hackett Hierarchy of Supply, a supply organization could still be at the level of supply assurance, could have moved on to analyzing landed cost, may have begun its entry into the modern era with an analysis of TCO, might be poised to become a leader with a foray into demand management, or, and this is the highest level of maturity, may be focussed on the art of value management.

But delivering value first requires understanding what value is to the organization (and how Procurement can contribute to it) and then requires getting a mechanism in place to repeatedly deliver that value at regular intervals. There are various mechanisms that can be considered, but regardless of the mechanism you choose (and whether it is process-based, platform-based, or a hybrid approach), it needs to be powered by an engine. And in particular, that engine, which needs to keep on churning out value like a real engine keeps churning out power, needs to be efficient and effective.

One has to keep the productivity plateau in mind. An organization that only focusses on efficiency will, at best, fail slowly. Similarly, an organization that only focusses on effectiveness will, at best, survive. But what an organization really wants to do is excel, and that requires the right intersection of efficiency and effectiveness. In particular, the organization has to focus on effective goals, implement them as efficiently as possible, and then use the savings to take on even more effective goals.

So how does a Procurement department improve its productivity? Generally speaking, the Procurement organization increases its value (for money, VfM), and the basic formula for that is simple:


Value Increase = Reduce Input + Increase Output + Reduce Energy
 

while focussing on categories important to the business

And how can it do that? In a category-agnostic way, it can:

  • reduce demand
  • increase Spend Under Management (SUM)
  • decrease contract costs
  • increase contract compliance
  • decrease storage and utilization costs
  • reduce risk

And how can it do this efficiently? In a general way, it can:

  • implement systems to improve cycle times
  • implement processes to reduce maverick spend
  • manage market dynamics better

And how can it translate the general to the specific? That’s a harder question to answer, but one that is addressed in considerably more detail in a new white paper co-authored by the doctor and the procurement dynamo, sponsored by Pool4Tool, on how to Boost Your Procurement Value Engine. Part I of a II-part series (with Part II coming out in Q3), this paper will give you the insights you need to understand the various levers you have to deliver true value and how you can do so in an efficient, effective, and sustainable manner.

It’s Time To Rev Up Your Procurement Value Engine. But Do You Know How?

Procurement doesn’t exist to just buy stuff. Procurement exists, at least if it’s a modern Procurement organization, to identify and deliver organizational value. Long gone should be the days when Procurement, staffed by the island of misfit toys, existed only to process the paper work that allowed manufacturing to buy the parts it needed or the back office the paper and calculators required to do the day-to-day accounting.

But the identification of organizational value, as long-time readers of SI know all too well by now, is not always straight-forward. Every organization is different, and every Procurement function has a different level of organizational maturity. As per the classic Hackett Hierarchy of Supply, a supply organization could still be at the level of supply assurance, could have moved on to analyzing landed cost, may have begun its entry into the modern era with an analysis of TCO, might be poised to become a leader with a foray into demand management, or, and this is the highest level of maturity, may be focused on the art of value management.

However, delivering value takes more than just realizing that your function is to deliver value. It is understanding what value is to the organization and how Procurement can contribute to it. Simply put, one way of defining value to the organization is whatever allows the organization to increase its revenue potential. (More sales, more market share, more brand recognition and brand love, and so on.) One way of assisting the organization in the capture of this value is to deliver products, services, and knowledge that will assist the organization in strengthening its Unique Selling Points (USPs) or Unique Value Propositions (UVPs) that give the organization the competitive advantage it needs to increase its revenue (or profit) potential.

It is not easy to do, especially since a Procurement organization has to understand not only what it must do, why it must do it, and how it will achieve it, but how to be good at it. Few organizations get demand management under control and step up to the highest level of the pyramid. Fewer still can stay there as they will struggle with the how. And even if they occasionally understand the how, they may never master the art of being good.

If one wants to be good and drive to success, one has to have a vehicle powered by a finely tuned engine that can deliver value lap after lap around the sourcing track. Such an engine must be efficient, effective, and sustainable. Only then will Procurement be able to get good and stay good. So what does such an engine look like, what sort of value will it deliver, and how will it deliver that value?

For the answer, check out the new white paper co-authored by the doctor and the procurement dynamo, sponsored by Pool4Tool, on how to Boost Your Procurement Value Engine. Part I of a II-part series (with Part II coming out in Q3), this paper will give you the insights you need to understand the various levers you have to deliver true value and how you can do so in an efficient, effective, and sustainable manner.

Regulatory Sustentation 36: Labelling

As per our damnation post, while the the subject of labelling sounds harmless enough, it can still pose a nightmare for your supply chain. Products that are not properly labelled can be held up or seized at the border, seized for violation of state or federal labelling regulations from your warehouses or shelves, or result in massive fines and trade embargoes until the problem is corrected.

And it’s not as easy to adhere to labelling requirements as one might think. For example, in food and beverage, many jurisdictions require not only that all products contain nutritional information but also indicate whether or not the products are derived from GMO (Genetically Modified Organisms). In the tobacco industry, despite continuous threats of lawsuits from the tobacco companies, countries are starting to impose plain packaging laws and third parties dictate what packaging can and can not contain. In electronics, some countries are considering imposing laws that force a company to indicate the expected lifespan of the product being produced and how long it will be supported (as this is very important to a consumer spending hundreds, or thousands, on a new electronic device with the belief that the manufacturer is going to support the hardware and software for at least a few years). And different countries require different units, warnings, languages, etc.

This is not necessarily a bad thing, because consumers deserve to know what they are buying, but if multiple jurisdictions require different labelling requirements, it can be difficult to produce a label that satisfies all of the jurisdictions that operate under the same language. And if the company needs to produce a multi-lingual label that satisfies multiple jurisdictions in multiple countries, it can be a nightmare.

As per our damnation post, there are steps a company can take, namely:

  • the implementation of a Global Trade Management (GTM) solution,
  • careful review of each proposed label for full compliance before it is seen to the packaging supplier, and
  • monitoring for changes in labelling requirements so that the company does not get caught off-guard

but if a company is really ahead of the game, it will also:

    • monitor for proposed changes in labelling requirements and make sure it is in compliance before they happen if approval is likely and
    • monitor for key issues and complaints by buyers and find ways to proactively address issues before lawmakers tackle them and take a leadership position, which will improve the brand.

And, of course, make your labels as easy to understand as possible. If the product is packaged in 1L, don’t put nutrition counts for 278 ml against suggested daily values that aren’t even indicated on the package. NO one can quickly do that math in their head!

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.