@ Supply Chain Management

I have spent the last few days thinking further about metrics (supply chain metrics, financial metrics and all sorts of other metrics) but I haven’t hit upon a foundational idea (or a set of ideas) to order all my thoughts. So the rummaging continues and I took some of that rummaging online:

A thought process when thinking about metrics (any sort of metric) is to ask, how the other metrics in the firm look like. An example of that would be stumbling upon such as this observation by Brad Feld,

Several years ago, some of y’all may remember an event called “the bursting of the Internet bubble.” Immediately preceeding this event, companies (and investors) focused on growth at any cost. This growth took various forms ranging from the one key financial metric that everyone cared about at the time (revenue) to non-financial metrics such as eyeballs, click-throughs, and affiliates. Shortly after the bubble burst, people started focusing on net income, cash flow, cash on hand, and other financial metrics. Not surprisingly, these were things that most rational business owners had paid attention to since – oh – the beginning of time.

Brad is talking about metrics in an industry that for a short period of time saw tremendous growth – the one financial metric used was revenue along with a host of other metrics such as eyeballs, click-throughs and perhaps even today – page views.
As Brad notes further down in his blog, the staple of financial metrics as used internally within a firm would be more along the lines of,

Monthly data we collect (and consolidated so everyone in the firm sees it on a weekly basis) includes revenue, cost of goods, operating expense, EBITDA, headcount, cash burn, cash on hand, debt, projected insolvency date, additional cash required to breakeven, and projected first quarter of profitabiity.

Another interesting take on operational metrics is the following that comes from the profession of lawyers (i.e. a service/consulting type of environment):

The Law Practice Business Model was introduced in 1984 by David Maister as a mathematical expression. Maister’s formula is as follows:
NIPP = (1+L) * (BR) * (U) * (R) * (M) where,
NIPP = Average partner income
L = Leverage (ratio of associates to partners)
BR = the “blended” hourly billing rate
U = Utilization (client hours recorded)
R = Realization (revenues divided by “standard value” of time recorded)
M = Margin (partner’s profit divided by revenues)

M. Thomas Collins notes further that

Maister’s model doesn’t tell the whole story. The financial manager has to be just as concerned about metrics that measure unbilled fees (work-in-process) and billed but uncollected fees (receivables). The managing partner has to be concerned about metrics that are not reflected in the financial numbers but will impact those numbers in the future. For example, are we opening new matters faster than we are closing old ones? Are the partners meeting their individual marketing goals? Is client satisfaction on track or veering off-course? While the Maister model is not the whole story, it is at the heart of the story.

The above mathematic expression is really a current snapshot and I assume that such a snapshot is taken at the end of some period such as a month or quarter. In fact, it can be characterized as a trailing metric (the stock market analogy would be ) and as such is not forward looking because it doesn’t take into account an unfolding reality.

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Sometimes I wonder if it is fair for me to pick on a teenager’s inability to manipulate numbers. After all, I have the advantage of double their years to have it figured out. Well, then I am reminded that this is something that is commonly observable human nature. It is one thing not to know simple math, it is another thing to disdain any attempt to point out simple/simpler ways of being effective at simple math, it is another thing to argue utter nonsense in order to make the problem go away and yet another thing to acknowledge one’s ignorance or mistake and correct it. Various actors in my previous post display these characteristics and its opposites to varying extents (Before thinking out of the box, How about thinking in the box?)
My humble point is this – that the purpose of education should be to teach thoroughly the simple abstractions that are necessary for life, plant the curiosity for digging up facts and the human values that integrate these abstractions and facts in a coherent way. If there is a fact of life, it is that humans make mistakes with all sorts of combinations of abstractions and in order to make the world work, one must be willing to repair the effects of our errors. Ofcourse, one must be able to discover these errors in the first place.
There is a frequent observation that I have made during the course of my life – a paradox. It goes this way…
All school children are taught elements of grammar during their education. Well, at least, that was the way it used to be. I wonder if today, the authorities have dispensed with the need for learning grammar (segments of the creative arts have definitely abandoned any notion of grammar). However, if you read the great authors/speech writers etc, you would find that they frequently flout the rules of grammar. While grammar is essential to communication or the communication of ideas, particularily compelling ideas conveyed in improper grammar are still compelling enough to forgive the author’s ungrammatical ways. Or simply put, while grammar is essential to clear communication, sometimes the communication is quite clear despite wrong grammar. So why bother about grammar at all? Let’s just make it up as we go. Clearly, this is not going to work. This, I believe, is the motivation behind the pithy phrase – Rules are made to be broken. It could very well be that these rules are man-made rules but that is not the (right) reason why they’re broken, they’re broken because something more compelling is at hand even if the rule has to be broken in order to get at the result. Of course, this is the dynamic between revolution and orthodoxy – while a rigid orthodoxy is often stifling, endless revolution approaches chaos. The way through, the historical observation, is treading the middle ground or meandering in the middle.

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This weekend, my wife and I were out shopping for a crib for my five month old son. And we visited the Burlington Coat Factory, Appleton, WI to get one. We also decided to get some beddings for the crib. All in all a successful trip.
Not!
So, here’s what happened. The bedding was originally at $159.90 and it gets on wife’s nerves no end that if asked about the price, I would invariably reply $159 or $159.90 whereupon she would round up the value to $160. Nevertheless, it was marked down to $139.98 which made it a great buy. It was further discounted at a 25% off as well. Ofcourse, that made it a great must buy. So far so good.
Only having driven all the way back to Green Bay, did we discover that the 25% was applied to the original price (that of $159.98). And that’s where the fun begins.
So we drove back again the next day, Sunday, to settle the matter and we line up at the returns center. Since, I was looking for some dress shirts, I proceeded to the aisle leaving my wife to settle the matter. The matter is rather simple, as far as we can see it, apply the discount to the marked down price of $139.98 which should cost us a grand total of $104.98 instead of the $119.92 that we had been charged the previous day.
Five minutes later, my wife searches me out and says – No go. The returns clerk had informed her that the original price of bedding was $159.90 to which the discount had been applied and so the charged price was $119.92. This even though, she had shown him the marked down tag of $139.98. Said I, “This is silly,” and so took the bedding back to the returns center.
This time round, the line at the returns center was rather long and so I did the next best thing which was take the adjacent line and in due time I was waited upon by a teenager (a girl who could be in my estimate about 12-13 years of age). That’s when the fun really begins. I explain the situation to her, show her the tag, prove further that there is a 25% discount and on and on. She scans the bar code and the price reflected in the register is the original price of $159.90 and so apparently there’s nothing that she can do. I show her the tag on the item itself which reads – $139.98 but the system retrieved only the original price.
And that is when the fun really begins.
The returns clerk (a guy about 25-ish) leans over and tries to convince me that if I applied 25% to the original price of $159.90 or the marked down price of $139.98, I would obtain the same price. In fact, he walked over and tried to convince me about that – “Its all percentages – you’ll get the same value.” I’m not kidding. By this time, I should have spent about 5 mins in this entire process growing quite incredulous.
Ofcourse, the checkout girl is getting a little confused with all these numbers flying about especially with the percentages. So she does the next best thing rather than trusting a customer (Is the customer still king?), which is turning to a co-worker – another teenaged boy (of the same age or close enough).
Now, he thinks for awhile about the conundrum – what is 25% of $139.98 which should then be subtracted from $139.98 to obtain the right price? So he writes down dutifully on a scrap of paper and instructs his co-worker (and friend, I must say) to multiply out $139.98 * 0.25. Ofcourse, all this is flabbergasting to me. No, not the fact that they don’t have a calculator but as I tried to explain to both these teenagers that all you have to do is divide $139.98 by 4 (which I hope you’d agree is a far easier prospect than straight out multiplying $139.98 * 0.25 on a scrap of paper) and then subtract that value from $139.98 to get the right amount.
NO GO!
So the checkout girl ignores me and sets about the task of multiplying out the values. She doesn’t finish the task though – a lot of numbers here and there but no result. So her manager appears on the scene and proceeds to ascertain what the situation is. And so starts the process all over again. I explain my situation as clearly as I can.
NO GO! Even with the manager.
The manager (a woman of about 40 years of age) is befuddled by the system though. Not with the math. But ofcourse, we all get to the math sooner or later. The manager however wanted to find a calculator as I was trying to explain to her that the right value was $104.98 and how to obtain it rather simply. Meanwhile, the returns clerk comes over once more to explain his version of math to the manager.
Alright, you shouldn’t take a customer at his word. So not being able to find a calculator, she gets the manager of the Baby department after a few bell buzzes. So here I am having to explain the situation a third time to the second manager. She goes through the process of scanning the bar code, looking at the tag and declares that she will have to override the system which she proceeds to do. Long story short, I get my discount. The whole affair took a good half an hour of my life which I won’t get back but my wife and I could not help but talk about it on the drive back to Green Bay.
You’re free to draw your own conclusions about this episode and what it says about the acquisition of the most basic skills through education and a dependence on technology and how clueless that can leave you. Here’s my conclusion – “If you don’t do the numbers when you have to, the numbers will do you in when you don’t want them to.” There are enough characters promoting the importance of thinking out of the box but the need of the hour is to first teach people to know that there is a box – A REAL UNDENIABLE BOX – which needs to be thought about first before thinking out of it.

Tags: Burlington Coat Factory, Funny math, The right price?, From person to percent, Thinking in the box before thinking out of the box