@ Supply Chain Management


The False God of the Almighty algorithm

Evolving Excellence has a great article (that gave me some pause when I read it) about the False God of the Almighty algorithm. The reason that I read the article at least twice and then all the following comments as well is because I do have a deep interest in algorithms as well as lean principles and the article made it seem as the twain shall never meet. Perhaps, they should and perhaps they shouldn’t but a larger point about invoking, adopting and implementing ERP systems was made which I find quite relevant. I am of the opinion that ERP systems are bound to face radical competition but I didn’t think about the source of that radical competition. The reasons for holding this opinion are as follows:
1. They’re too cumbersome to implement and consequently the failure rate is high for firms that go that route
2. The firm has to adapt its processes to what the ERP is mostly configured to do (No, you won’t hear that from any vendor. In fact, you’d hear exactly the opposite). This is quite akin to Ford’s famous quip a while ago, “You can have your car in any color as long as its black.”
But that is not what the article is really about. In a nutshell, the following quotes illustrate what the story is really about:

“These are two radically opposite worlds … One is the tech-savvy and IT-powered optimization world and the other is the pencil-and-paper problem-solving world. Which world should we live in?”


“What do we know about SAP, and how well it integrates with lean principles (or lean implementations).”

The first thing to note is that optimization problems are notorious to handle all by themselves (but elegant in the formulations that have been drawn up) but when they’re applied to real world problems, the modeler first creates a system (an artificial world), then models the problem within the system and finally attempts to solve (hopefully) the problem to optimality (hopefully) in a brief flurry of command line code instructions. And voila, you have an optimal answer. However, the model, the answer and the system are first and foremost matters of interpretation. Why there is a lot of WIP sitting between two furious machines is not a matter of interpretation as much as it is a matter of fact. The other (secret and don’t you ever say that I said it) shady part of optimization applied to real world problems is that not all of what is called ‘optimal’ is truly optimal (or mathematically optimal) but no salesman will ever tell you that either out of sheer ignorance or cognizance that its the best that can be done. If I were to peer behind any ERP vendors so called optimization algorithms, I’d be sure to find (hopefully) a hybrid of optimization and heuristic algorithms embedded within that are spitting out answers. So that’s what really happens on the optimization side of things.
On the lean side of things (and as lean goes, I shall be very brief in my answer) – you work in a philosophical framework that is bent on eliminating waste in a real system.
So what happens when the optimization world of IT clashes against the problem solving world of lean (or at least that’s the way the clash is cast):

wasteful processes being proceduralized in algorithmic stone, monstrous amounts of extra inventory generated to accommodate the cascading “schedule risk” of individual operations, and of course implementation costs that can exceed $100 million buckaroos. And interestingly enough, several people chimed in with how they have gone back to using simple visual controls and Excel spreadsheets to schedule complex operations.

If one wants to clarify the clash, it would be instructive to consider some real evidence (as opposed to the neat tick-tock world of a an optimization/heuristic modeler) and that evidence is Toyota:

About the most complex type of factory is one that makes almost a thousand cars with several hundred permutations every day. And Toyota does it with no MRP-type shopfloor control. MRP is used to handle financials, inventory costing, and the like… but shop floor control is pure manual pull with a small number of e-kanban type applications.

This kind of evidence is particularly damning because in contrast to the system that the optimization resides in, the application of lean on a shop floor deals with reality – a tangible profit creating and wealth generating reality. You can’t explain that away. And,

Excellence through simplicity.” To me that quote from Lao Tzu has always epitomized one of the fundamental tenets of real lean. Don’t proceduralize complexity, and don’t make something more complex than it needs to be. Manufacturing really isn’t all that hard… you make something, preferably one of it, and you get it out of the operation as quick as possible. Once you remove the loads of WIP from the floor by focusing on the velocity of the single unit, you begin to realize how so much of that perceived complexity is due to not having an unwavering desire to get a product through the flow as quickly as possible.

The above discussion (or polemic, depending on how you see it) is why I go hmmmm… because ERP is asking for competition. So what am I going to do? That is the only question.

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Where the Supply Chain Planning Players are at?

Gartner Research has published its magic quadrant (nothing magical about it but its an informative quadrant though) about the relative competitive position of Supply Chain Planning software vendors for the first half of 2006.

There are three key sectors (Process Manufacturing, Discrete Manufacturing and Distribution Intensive) for which the quadrants were created. They’re available free of charge at Oracle’s site (Magic Quadrants for Supply Chain Planning) at the following links:
1. Magic Quadrant for Supply Chain Planning in Process Manufacturing Industries, 1H06
2. Magic Quadrant for Supply Chain Planning in Discrete Manufacturing Industries, 1H06
3. Magic Quadrant for Supply Chain Planning in Distribution-Intensive Industries, 1H06
What I wanted to determine from perusing these quadrants was the criteria by which certain firms’ SCP software was categorized as visionary and others as followers or laggards. Here is the summary of firms seen as visionaries (as opposed to niche players) in various segments of the SCP marketplace.

Process Manufacturing Discrete Manufacturing Distribution Intensive
Aspen i2 i2
Manugistics Oracle Logility

According to the report, a visionary has to demonstrate:

  • A developing global support strategy
  • Five customer references in each targeted vertical industry
  • Differentiated vertical-industry domain expertise and unique industry-specific functionality
  • Development beyond a third vertical-industry-specific solution
  • Development support for a multi-enterprise architecture on an SOA platform
  • A targeted presence leading to influence and activity into how aspects of the market evolve

Making sense of the alphabets (ERP, SCM, MRP, MRP II, CRM, PLM… hmmmm)

There is no doubt in my mind that if I were to ever come up with a product offering in one or all of the above spaces, I’d christen it hmmmm without thinking a second time – market research be damned. Then again, the world is spared the notion by the appropriate coincidence that I haven’t come up with such a product offering but boy its getting there. There is little doubt in my mind that I detest jargon of every kind except the kind that I understand. Jargon introduces a threshold in conversations as well as shorthand to getting things across. If you were to talk to me day long about ERP systems, not only should you expect diminished returns of attentiveness over the course of the whole day but also an increased willingness to employ violence towards the end of dat. But remember, I know something about ERP. So what about those genteel people of the world who know nothing or next to nothing about ERP not to say anything about the rest of the alphabet soup? I will not even mention those who have been through an ERP implementation and a still smaller group who have been through a successful implementation of an ERP system.
So, first of all a clarification of the alphabet soup:
PLMProduct Lifecycle Management: How do you manage the entire lifecycle of the product from conception, to design, to manufacturing, to after market parts and lastly obsolescence? I ask myself who is responsible for thinking that products are the lifeblood of a company? Let’s see – do accountants think like this, do finance people think like this, do marketers think like this (may be), does customer support think like this, do engineers think like this (you betcha), do logistics people think like this? I’d hazard a guess that PLM was developed by engineers for engineers and has suddenly found broad acceptance in a whole stratum of jargonists for whom Excel just would not do. But I’m being very creative here with my guessing.
ERPEnterprise Resource Planning: A while ago, I read an article at Darwin magazine that ERP was neither about Resource nor about Planning, it was about Enterprise. And that puts a sharp axe to everything that you might read about from an ERP vendor’s colorful brochures no matter the breadth of applications and features that an ERP possesses. ERP bothers itself about the whole enterprise from sales and marketing to manufacturing and supply management, transportation and warehousing to finance and accounting – the whole gamut. When such is the scope, then failure is not only possible but also lurking at every corner to make a lunge at such an enterprise wide transformation. Methinks that ERP is ripe for competition (Can elephants dance?) – radical competition. Hence, hmmmm…!!
MRP (& MRP-II)Material Requirement Planning (Manufacturing Resource Planning): Before ERP was, MRP (& MRP-II) was the order of the day. Material Requirement Planning (MRP) was developed for manufacturing companies in order to calculate what materials were required, at what time in the optimal quantities. That morphed into Manufacturing Resource Planning (MRP-II) with the idea that true MRP required a more broad based approach that included shop floor control, planning and scheduling etc. The other major introduction with MRP-II was the closed-loop model with the aim to compare forecasts with output and thus improve the required processes.
CRMCustomer Relationship Management: As the name implies, this type of (software + methodology + capability) is aimed at better management of a firm’s relationship with customers. Rather than just powered by a software, it is a structured interaction with a firm’s customers that is systematic and intentional. The functions that are most impacted by CRM include marketing, sales and customer service with allied functions such as BI (Business Intelligence) etc.
SCMSupply Chain Management: Saved the best for last! Some might be of the view that supply chain management is all about managing suppliers. Perhaps this is why some insist on calling this field Demand Chain Management because it is all about fulfilling demand but that is not all that accurate either. Perhaps, it is better called Chain Management because that is what it really encompasses is a whole gamut of activities from suppliers to manufacturers to transportation to warehousing and inventory to sales and forecasting – a chain of activities that need to be deployed, changed or reworked at a moment’s notice. Oh by the way, just when it was getting manageable, everybody decided to outsource to China. A few years ago, it would have been common for people to say that SCM sits on top of ERP systems – today, it is the ERP system.

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Product Lifecycle Management (PLM) – What is it?

Another buzzword, another hyped up same ol’ thing or something new, looking at an age old problem with new glasses – what is PLM exactly all about? I came across Arena solutions which is in the business of selling PLM tools and went through their demos to ascertain what they’re upto. In a nutshell, PLM software:Products as ERP:Finance and CRM:Customers. Attendant to the described associations is an underlying definition that no vendor of the latter products might sign up to because they’re in the business of extending their solutions/services into the PLM space or any other space that one can think up.

Mark Holman of Arena solutions in his demo seeks to explain how PLM can:
1. Accelerate time to market
2. Streamline collaboration in the supply chain
3. Ship profitable products

Mark also compares the current state of PLM software with traditional PLM software based on the Client-Server model as opposed to the PLM as a service (SOA approach?) model – meaning that all you need is a internet connection and a web browser (Web 2.0?), that they follow.
A first cut review of the demo leads me to think of PLM as a information exchange and, product related control routing and processing tool that uses SOA to deliver its content. I’m sure that ERP vendors are hot on their heels adopting the same technology wholesale into their myriad functionalities or extending their current capabilities in that direction. Gleaning information from the demo, I’d classify PLM as an analytic tool that brings into a firm adopting it a host of its own preferred method of structuring product management, cost reductions, collaboration etc.
However, something that struck me that if ERP seeks to subsume PLM, might PLM instead replace ERP itself simply because of the ease of adoption, focus on product management rather than financial mumbo jumbo and accounting? Could PLM and CRM taken together as an integrated SOA render ERP irrelevant?

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SCOR Model Version 8.0

Ehsan of SupplyChainer.com has done a review of the latest SCOR model (Version 8.0) that has been released by the Supply Chain Council. Ehsan has reviewed some of the changes with the new SCOR model at his site here. I hope to review the SCOR model in depth at a date not too far into the future.
Enjoy the review!
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Six rules for finding IT value

Paul Strassman has a relatively older article that has a rather frank discussion on finding value in IT projects. Given my interest in the enterprise application software, which could be classified as one gigantic IT project which has nothing much to do with IT, this article certainly had my antennae up.
Paul begins:

So far – to my best knowledge – nobody has been able to demonstrate that there is a positive correlation between money spent on IT and sustainable profits.

Alright, that’s one swing from the bat but let’s see if it is on target…

Sure there are articles about the positive contributions of IT. But the proof could be applied to justify greater IT spending as a sure cure for poor for poor financial numbers is still missing. The quest for demonstrating the directly measurable value of IT can be added to the list of fascinating but hitherto unfulfilled ambitions to attract academic fame or consulting contracts.

And quite importantly…

What is always missing is a repeatable technique for performing the calculations that would satisfy a firm’s methods for making investment decisions

Alright, Paul is not denying that IT investments contribute/create value for the firm but that a direct measurement of that value created/contributed is so far lacking and when provided is not repeatable in other contexts. I would hazard a guess that demanding controlled repeatability in the real world is an idealistic requirement which is more to be found in the scientific world than the business world.
He continues:

Nevertheless, there are ways of finding IT value – it’s just that they are all indirect.

He has outlined 6 key rules that might direct an investigator as to where to look for IT value:

Rule #1: Follow the money – The decisive contribution to an enterprise’s profitability is its capacity to manage purchases. Ergo, that is where the contribution of IT should be maximized as that is where the greatest opportunities are – primarily in improving the management of the firm’s purchases and in simplifying transaction costs. The relationship between purchasing, transaction costs and profits has not been adequately exploited.

Introduction to Supply Chain Council’s SCOR Methodology

Paul Harmon of Business Process Trends has an oldish whitepaper on the Supply Chain Council’s SCOR Methodology and how firms can go about systematically designing and implementing supply chain processes according to the SCOR methodology. The whitepaper is quite detailed and goes into every part of the SCOR methodology. What I would like to know is how well this process methodology has worked out in practice because my knowledge of the methodology is of one outside looking in. The most updated version of the SCOR process model can be obtained at the Supply Chain Council’s website here.
Paul suggests that implementors think about their first SCOR project in terms of six phases as he outlines in his whitepaper:

0. Review Corporate Strategy. This isn’t so much a project phase, as a decision to consider whether an existing supply chain can be improved.
Once this decision is taken, a team is set up, trained in the SCOR methodology if necessary, and set to work.

It is not only a committment by the firm to review its supply chain processes but the necessary definition of where the constraints are, where the emphasis ought to be, what variables are significant levers and what variables are not essential to competitive advantage etc. If one has developed the purpose of using one’s supply chain as a competitive tool, the one must at the very outset outline how the firm envisions the structure of that competition. That’s why this stage is crucial to the review of the SCOR process. An example would be wherein a firm has decided on a decentralized distribution strategy with DCs as close to the customer location as possible. From the follows directions for transportation management, warehouse management, supply and order management with respect to the manufacturing etc etc.

I. Define the Supply Chain Process. SCOR provides a common vocabulary and notation system for defining the major processes that make up supply chains. The first phase the team undertakes is the actual analysis of the existing process. This effort includes decisions about the number and scope
of the supply chain processes to be examined.

The key idea that any cross industry standards group such as the Supply Chain Council brings in is the establishment of standards. A corollary to this is that standards sacrifice innovation flexibility for conforming understanding across the industries adhering to the standard. In the case of SCM, which often spans several industries like warehousing, transportation, suppliers of numerous items across different industries, manufacturers, importers, exporters etc, such a standard is quite crucial because it brings disparate parties together and forces them to learn some bits and pieces of a new language. However, such a standard is only as good as the breadth of adoption and I don’t think it has gone as far as it should so that using such a standard becomes essential.
If you were about to reengineer or design a process, then the logical second step is to ascertain what needs to be done – some might go for the low hanging fruit in order to demonstrate competence, some for the big change (in order to demonstrate bigness?? Or perhaps it might be an issue of survival) and still some others might go for something in the middle but crucial to getting it right.
Paul elucidates on how SCOR types all supply chain processes into the following five general sub-types:

Plan, Source, Make, Deliver, and Return. Complex supply chains are made up of multiple combinations of these basic processes.

The SCOR Process model that is captured in a process diagram gives a good idea of how a firm’s entire supply chain can be mapped out in terms of the above general sub-types as well as process types (Level 1, Level 2 and Level 3).

II. Determine the Performance of the Existing Supply Chain. Once one has scoped the existing supply chain process, one can use historic data to
define how the existing supply chain is performing. In addition, one can compare the performance of your supply chain with benchmarks to determine how your process stacks up against similar processes in similar industries.

If you knew what you were doing, the next logical step is to know how well you’re doing what it is that you’re doing. So after understanding how the existing supply chain is structured, the question then becomes about measuring the performance of the current supply chain against which future changes will be measured i.e. creating a baseline.

SCOR defines five generic performance attributes and three levels of measures that the analysts can use.

The measures are numbered (m0, m1, m2 and m3) where
m0 – measure the performance of the organization as a whole (also designated as Internal Facing Measures)
m1 – measure the performance of the supply chain as a whole (aslo designated as Customer Facing Measures)
m2 – measures that are related to Level 2 processes
m3 – measures that are related to Level 2 sub-processes
This type of current performance data benchmarked against same industry competitors or cross-industry firms gives an idea of what the future state performance targets ought to be before rework of the supply chain processes can be started.

III. Establish Your Supply Chain Strategy, Goals and Priorities. Once one has hard data on the performance of your existing supply chain, and
benchmark data, one is in a position to consider if your supply chain strategy is reasonable, and how it might be improved. One can consider alternative
targets for improvement and determine how they might improve the company’s performance. Similarly, once can identify which changes would
yield the highest return and priorities any improvement efforts.

Leading up to this point, each of the previous steps has been a lot of legwork, data gathering and analysis, explanation of standards that a firm might adopt etc. This has a two-fold benefit. The first being that the firm itself has a greater and broader understanding of its own supply chain (you might be surprised at how little understanding some firms have of their own processes) and the other being that a lot of data, diagrams and information about the firm has been generated that provides a fact base upon which further work can be carried out i.e. a rigorous numbers based foundation has been laid that can be investigated at a later date. Developing a SCORcard which ranks performance attributes vs competition in the current state and expected future state into three ranks – Superior, Advantage and Parity. This sort of ranking and analysis should ideally be in harmony with the roadmap that heads in the direction of sustained competitive advantage or that there are few key performance attributes that will be chosen as the attributes of focus which in turn should generate the desired competitive advantage. As Paul reports, there is a round trip to Phase 0 that might be beneficient to the firm that is undertaking a supply chain examination. This time round, the development of corporate strategy is in the light of a preliminary diagnosis and additional lab tests to boot. That makes any highly wishful and fanciful thinking hit the road so to speak and adjustments can be made i.e. closed loop feedback in action. The next step in this process is to determine which of the supply chain processes needs improvement or reengineering.
So far so good.

IV. Redesign Your Supply Chain as Needed. SCOR provides a number of tools to help in redesigning a supply chain. It provides tools for identify
problems and gaps and suggests the best practices used by companies with superior supply chains. Tools are available to similar your redesign SCOR design so that you can be sure it will yield the results you have targeted.

Its time to get into the nitty gritty of Supply Chain redesign/improvement according to the SCOR model. From carrying out the previous phases, the areas for improvement should have already been identified. A number of time tested techniques have been provided by SCOR in order to improve the performance of supply chain processes which include lists of opportunities and transactions that often cause difficulty.

The redesign team may change its To-Be Thread diagram several times as it explores possibilities and studies the problem in more depth. The place to start, however, is with a tentative redesign.

For the Level 3 process that is under examination, the normal process is to consult the SCOR manual for a typical SCOR model for that process and compare what the firm does with the industry benchmark. The following is a highlight of what constitutes the generalized suggestions for best practices:

As a strong generalization, best practice suggestions can be subdivided into three general types. They can recommend new management practices. They can recommend new employee practices, or they can recommend the use of software applications or systems to automate an activity or to support the employees who perform the activity.

Paul also advises about the suitability of simulation in such a context wherein changes made to a supply chain are tested within a simulation in order to check the validity of the redesign/improvement. Why?

In complex supply systems, its sometimes hard for humans to identify bottlenecks that are obvious once you run several large sets of data through a simulated model of the system. Simulation can take time and it requires developers who are familiar with the techniques required by the simulation tools, but if you are seeking to make millions of dollars of changes in a key supply chain system, spending two months and a hundred thousand dollars to be sure that your system will work as designed is well worth it.

V. Enable the Redesign and Implement. Once the design is complete, you must implement the redesign using software and human performance
improvement techniques. Then you must implement the new supply chain and gather data to determine if you are, in fact, meeting your new targets.

This goes to the control phase that is emphasised in Six Sigma methodology for continuous improvement that envisions that improved or new processes will need freezing, implementation and finally measurement to see whether targets are reached.

As can be seen from this extended look into the SCOR model for supply chain, there is a high degree of congruence with the PDCA (Plan-Do-Check-Act) methodology for continuous improvement as well as the DMAIC (Define-Measure-Analyze-Improve-Control) methodology of Six Sigma. There should be because they’re about process improvement but in the case of Supply Chain, the SCOR model has adapted this general process improvement model into the SCM space as well as provided the best practices benchmark so that firm’s following the methodology can be continually informed through a feedback loop. However, the SCOR model because of the focus on industry best practices and deriving improved/new processes from that creative pool of what has worked for others or what has worked well points a firm in a particular direction i.e. the direction that other firms in its competitive landscape are headed towards. Ergo, if there is an underlying philosophy that is driving the best firms in a particular industry (be it efficiency, velocity, flexibility etc) in a particular direction, how do you think copying that industry’s best practice affects the firm that is redrawing its own processes – in the same direction? This is a serious problem, in my opinion, because I am interested in flexible supply chains over efficient supply chains. And this preference harkens back to the ways in which a firm may derive sustained competitive advantage. Ask yourself where the source of true sustained competitive advantage is located? Then, ask how adopting process improvements that rely heavily on industry best practices delivers competitive advantage – are they sustainable or merely short term jumps, rapidly copied and thus lost advantages?
The SCOR model seems to be concerned (and rightly so) with execution of the supply chain through well analyzed and developed processes and stresses the steering of corporate strategy in Phase 0 step itself. I think that you’re more likely to end up with a very efficient supply chain simply because at this time, there is a clamor about efficient supply chains but only murmurs (or perhaps, silence) about flexible supply chains. Perhaps, one of the factors that has contributed to this state of affairs is that Source/Make has shifted to more efficient means of production/procurement (read outsourcing) and that effect is rippling through the supply chains of many a firm.
So, what are flexible supply chains?
Coming soon to a blog post near you…

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About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

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