@ Supply Chain Management

In Part 1 of Achieving Continuous Improvement in Complex Supply Chains Today, I reviewed Robert Bowman’s article in GLCS “Achieving Continuous Improvement in Complex Supply Chains Today” and took a closer look at the P&G example cited there. In this post, I intend to focus on the application of Business Intelligence and its role in continuous improvement.
Robert brings up the notion of Managing by Dashboard in the latter half of the article. He introduces the following:

A crucial element of any such technology is the executive dashboard, software which allows managers to monitor at a glance a series of key performance indicators (KPIs). HighJump has built some 500 screens into its products, although each customer utilizes no more than a handful of measurements, based on its unique needs. The tool gives users the data needed to pursue continuous improvement.

If one refers to the age old diagram of a supply chain’s structure, one would find product flow as well as information flow (typically in the reverse direction). Even with such an explicit definition of the importance of information flows and awareness of the importance of data within a firm, my experience in Supply Chain consulting shows that data about even the simplest transactions within a firm are mangled in ways that might drive horror into Frankenstein’s cold living heart. The one piece of data that is never mangled though is payroll. Ah! if only?
Robert alludes to that by writing:

Dashboards are only as good as the data they contain. The first step, then, is to set up a database that can act as the single point of storage for all relevant information generated by a company and its trading partners. In addition, the database must be scalable to accommodate rapid growth in sales, says Brad Fellows, senior partner of transportation, logistics and distribution with Teradata in Dayton, Ohio.

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Global Logistics & Supply Chain Strategies magazine has an article about Achieving Continuous Improvement in Complex Supply Chains Today at their site. The author Robert Bowman contends that:

Has the march toward continuous improvement come to a halt? Far from it. The idea lives on, under new labels.

What? No one told me that.
Robert continues:

Remember continuous improvement? A decade or so ago, it was all the rage. Companies were rushing to embrace the concept under a trendy Japanese term, kaizen. Continuous-improvement techniques were applied with some success to manufacturing, as part of the quality craze.
More recently, the term has faded from management playbooks. The very notion seems to have left companies exhausted. Some have turned instead to finite projects with clear objectives.

He’s quite right that a decade ago, they were all the rage and perhaps also right that today it is not uhmmm fashionable (?) to sport such terms in polite management talk. First of all, quality should not have been a craze and neither should kaizen have been one. I’d surmise that it is precisely because kaizen was a craze that it is not one today – crazes have a shelf life because those who adopt something crazy are quite likely to be taken up by another craze just as easily. It is the latter half of his contention that has me in splits – “Some have turned instead to finite projects with clear objectives”. Is it really true that kaizen has no clear objectives?
I suspect the main reason that the idea (or craze) of continuous improvement has died down is elaborated on by Robert Bowman below:

The move away from continuous improvement, at least under that name, is understandable. The idea isn’t tied to a single set of technological tools. It can’t be reduced to an easy series of steps for implementation. Continuous improvement isn’t a program; it’s an attitude. Some might view that as a shaky foundation for a comprehensive quality initiative.

Continuous Improvement begins from the top, is driven from the top etc etc which means that those who do not engage in the continuous improvement process as a long term problem solving project where in you’ve got to continually come up with innovative ways to solve problems and then rexamine those very same innovative ways again and again. However, whatever else that it might be, it cannot be a “shaky” (of any kind) foundation for a comprehensive quality initiative. So what has taken its place?

On closer examination, though, continuous improvement hasn’t really gone away. It thrives today in concepts such as Six Sigma and Lean. It covers a wide range of software applications, including executive dashboards, supply chain event management systems and other business intelligence tools. And it has transcended the original goal of eliminating waste in the assembly line to involve nearly every aspect of the supply chain.

At the cost of looking very foolish, I must say that I find the above difficult to parse. Exactly what it is it about Lean or the plethora of applications that it could be applied to that has transcended the integral notion of eliminating waste?

Most of all, it is focusing on the ever-important goal of pleasing the customer.

To take an example, in Lean thinking, elucidating value added and non-value added activities in a firm’s value stream implies that a firm must obtain the customer’s perspective of a firm’s activities and processes. Here a firm is not directly engaged in pleasing a customer but actually using him to identify waste within its own processes and activities. Perhaps, if waste within a firm’s processes are indeed eliminated, that might result in a better product or service but that is subject to a whole host of competitive concerns as well. Similarily in Six Sigma, attaining a six sigma level of defect reduction might please a customer in the fact that a product so produced doesn’t break down while the customer uses it or that the customer is able to notice a perceptible drop off in failure rates with products etc. However, often, the customer doesn’t even know this. How pleasurable might it be for a customer to know the thousand things that could possibly go wrong with a particlar product but doesn’t? Would such knowledge be a catalyst for customer’s product choice?
An interesting example is offered in the article – that of P&G’s supply chain execution problems:

One of P&G’s many projects addressed the issue of on-time delivery. The company’s performance in that area had slipped from 96 percent to 94.5 percent—an unacceptable level for one of the world’s largest producers of consumer goods. Lost sales were the result.
The problem, P&G knew, lay in its inability to seamlessly track a load from order placement all the way to proof of delivery. Multiple legacy systems and manual processes were needed to follow goods through the various stages of the supply chain.
Considering that P&G was shipping around 1,200 loads a day from 35 plants in the U.S. and Canada, that was no easy task. What was needed was a means of achieving shipment visibility through a single system.

So let’s begin by asking the pertinent questions:
1. Why did the on-time performance slip from 96% to 94.5%?
Even if it is not possible to discuss what particular event or sets of processes led directly to the slip of on-time delivery performance, it leads to the secondary question of how improving supply chain visibility addressed the causes that resulted in the loss of performance. That is the next question.
2. How did the introduction of supply chain visibility improve the on-time delivery performance?
Its quite clear from the description of the events that led to the adoption of supply chain visibility software within P&G that a set of events had to have occurred that led to a sudden drop in performance. Perhaps, it was the loss of a reliable transportation carrier on some key lanes or a software glitch in their transportation tendering process. Even though I am big on Lean thinking, the one thing that I cannot attribute to Lean is magic. Part of the problem of how Lean (or for that matter every craze or fad) is recounted is through the lens of a magical transformation. Instead, if the real story of Lean is told, wart et al, one would be able to bridge the gap that exists between the above two questions.
And here’s the kicker in the story:

Prior to implementation of SCM, about half the glitches that occurred were the fault of P&G’s carriers and other external partners, while half were internal in nature, says Stiles.

So we’re lead to believe that these glitches began to appear in a system with 96% on-time delivery performance and it was the application of lean thinking that turned things around. While it might have been lean application that did indeed improve the situation, P&G has still to account for why the system did work so well in the first place before it broke down. Why did it break down?
In the next post, I want to look at business intelligence and its application in today’s supply chain management space.

Tags: Supply Chain Management, Lean, P&G, Kaizen, Continuous Improvement, Supply Chain

Logistics Management highlights from their 17th Annual State of Logistics report a finding that rising prices and interest rates will soon push logistics costs above 10% of GDP. They refer to a report written by economist Rosalyn A. Wilson for the Council of Supply Chain Management Professionals (CSCMP) that places logistics expenditures at 9.5% of GDP.

That’s a sharp departure from the three previous years, when those costs ranged between 8.6 and 8.8 percent of GDP (see Figure 1). And it’s perilously close to the 10 percent mark, a long-accepted demarcation separating reasonable and exorbitant cost levels.

Among the factors contributing to this precarious situation are:

One factor is the steady climb in interest rates, which has pushed up inventory-carrying costs. But the biggest cost driver has been rising transportation expenses, which reached $744 billion in 2005, up from $636 billion in 2004. Soaring fuel prices, a driver shortage, and diminished competition have all come together to raise rates across all modes, and for trucking in particular.

The article explains briefly how the value of logistics relative to overall economic activity is calculated:

That formula adds together three components: inventory-carrying costs, transportation costs, and administrative costs. This year Wilson calculated total logistics costs for 2005 at $1.183 trillion, a 15.2 percent hike over the previous year’s total.

The article also offers a snapshot of the US Logistics Market in 2005. That snapshot shows that Transportation costs have the lion share of Total Logistics costs in the US and the major issues there are driver shortages, tight trucking capacity and higher diesel cost.
Longer term, the report outlines aging and inadequate transportation infrastructure and supply chain security as the two long-term challenges for logisticians. Wilson writes that the transportation infrastructure is severely strained in some locations because of the dramatic growth in volume of freight. As for supply chain security, Wilson notes:

Like many other industry observers, Wilson argues for a holistic approach to security. She advocates end-to-end monitoring of cargo and at the same time establishing and preserving a proven chain of custody. Although companies would have to bear the costs associated with those practices, she believes that improved security would justify the expense. “Investment in state-of-the-art cargo- security technology and monitoring solutions can provide a significant return on investment, often at bargain prices considering the value of the capital that could be lost by a disruption in global container shipping,” she writes. Embracing security as a core business function will mitigate the need for invasive government practices, she adds.

Categorized as: News_, Supply Chain Management_
Tags: Logistics Report, Transportation Costs, Logistics Challenges

Logistics Management has a new article that outlines why the Middle East is a booming regiong for logisitics and supply chain services. At least, that is the conclusion of a recent study released by the research firm – Transport Intelligence.

The logistics sector has been benefited as companies invest in upstream and downstream infrastructure projects. And, other opportunities are presenting themselves from investment in construction including tourism (hotels, amenities etc), reconstruction of Iraq, and transportation projects (ports, logistics parks and airports etc). In addition, the importance of consumer markets is increasing as GDP per head soars throughout the region.

That is the key takeaway from the article and I can personally attest to that having visited the Middle East not more than a few months ago on a supply chain consulting engagement. There’s a lot of oil money flowing in the region and that is being put to work building up infrastructure of all kinds. In short the area has been booming for a few years and could concievably continue to do so for a little longer. Current events, notwithstanding, this part of the world is pretty critical to the rest of the world and if there is something that a supply chain fits in nicely with – are the critical things that power/drive the rest of the world.

Categorized as: News_, Supply Chain Management_, Logistics_
Tags: Middle East, Logistics Services, Transportation

Logistics Management has an article on their website (Free registration required to view the article) which summarizes a survey of current trens with respect to SCM technology – likes, dislikes, loves and gripes. The respondents were surveyed about the type of SCM or related software that they intended to purchase/upgrade/deploy in the near future, important factors w.r.t SCM software and who in the firms made the decision to acquire SCM software. This is the kind of response that any SCM consultant or SCM software maker has to be keenly watching – hopefully not as a first source of industry trends but as a sort of secondary confirmation.
The article gives an idea about the content of their survey sample:

The final survey sample included logistics and supply chain managers from both large and small companies, with annual sales ranging from less than $49 million to $1 billion or more.

Some important takeaways (which are succintly graphed in the article as well):

1. Six types of software are most commonly used in logistics today. The most popular are warehouse management systems (WMS), used by 61 percent of respondents, followed by enterprise resource planning (ERP) at 55 percent and transportation management systems (TMS) with 34 percent. Rounding out the list are supply chain planning (32 percent), import/export management (15 percent), and yard management systems (YMS) with 10 percent.
When it comes to upgrading or purchasing software, WMS and TMS are at the top of readers’ shopping lists. Supply chain planning and ERP applications are close behind.
This year’s survey also highlighted an important trend in on-demand (“pay-as-you-go”) solutions. Some 28 percent of readers already use such systems, and 34 percent expect to purchase them within the next 12 months.
2. Ultimately, readers said, the most important reasons for purchasing supply chain software include the right features for their operations, quality of service and support, compatibility with existing solutions, and configurability. All of that is aimed at achieving one overarching objective. “The number one attribute that companies tell us they’re looking for is integration of their internal supply chain,” says John Fontanella, senior vice president and research director, supply chain services, at Aberdeen Group. “That is head and shoulders above everything else.”
3. Eighty percent of the respondents who plan to buy supply chain solutions expect to spend less than $1 million on software, training, and integration. Most are currently evaluating vendors, and a smaller percentage have already decided which vendor they’ll buy from. Respondents typically rely on a team that includes corporate management, information technology, and warehousing/distribution/logistics, among others, to make those decisions.
In exchange for their investments in supply chain software, one-third of the respondents expect a payback within 12 to 18 months.
4. Fontanella adds that a 12- to 18-month ROI is not only within reason, it has become a necessity. “It’s not an unreasonable expectation at all,” he says. “A technology vendor that can’t deliver that will be out of business.”

All of the above seems just about right except the last point. T’is all well and good to expect an ROI within a 12-18 month timeframe but to place that squarely on the shoulders of a technology vendor smacks of the COTS (Commercial Off The Shelf) problem and how firms tend to view software solutions – as a magic wand. And that is singularily unhelpful.

SC Digest released its Logistics Cost Survey for 2006 in March of the year. I’m catching up on it here.

Logistics Management announced American Identity as the winner of Logistics Best Practices (Gold Winner)

Here’s what they accomplished: