@ Supply Chain Management

Global Logistics & Supply Chain Strategies Magazine (online version) has an article in their recent edition on Investment in Supply Management. The article was authored by Jean V. Murphy.
The lead-in into the article reads,

With the growth in offshore sourcing and manufacturing, supply lines have become longer, more complex and more vulnerable to disruptions. Concerned companies are meeting this challenge with a disciplined approach to supply management.

While in the past (or even today), supply chains experienced bullwhip effects on a local or regional level. Several factors contributing to the bullwhip effect are summarized below:
* Forecast Errors
* Lead Time Variability
* Batch Ordering
* Price Fluctuations
* Product Promotions
* Inflated Orders
Now imagine that the scenario confronting supply chain managers in a global context. Will there be a global bullwhip effect? Maybe yes and maybe no. If you looked at the contrinbuting factors above, all of the above factors exist in the global supply chain but because of a larger lead time (not Lead time variability which is also a factor), the effects are either going to be highly exacerbated or well damped.
Perhaps, highly exacerbated effect is easy to imagine because multiple orders to cover non-existent demand would quickly spiral out of control given longer lead times. However, there is also the possibility that one might find a well-damped effect. The volumes of inventory that have to be maintained are going to be quite large at all points in the supply chain and this serves as a buffer in the system.
If you’ve had the opportunity to play the beer game and had a situation wherein a particular node in the game had a lot of inventory at some point early in the game, that node would buffer the upstream nodes from the imaginary demand occuring in the supply chain.

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In the continuing series of taking at look at “Living Supply Chains” (Part 1 of Living Supply Chains can be found here), I review the latest post about the topic – Living Supply Chains, by Dan Gilmore of SC Digest.
Dan summarizes the central point of Part 1 of Living Supply Chains as follows:

Gattorna says the creating of “Living Supply Chains” can create enormous competitive advantage, and that there are two keys: getting the people/culture side of the equation right, which in nearly all companies is a huge barrier to strategy execution, and “dynamic alignment,” in which a company’s supply chain organization, capabilities, and services are specifically – but flexibly – linked to customer buying behaviors (with a similar concept for supplier relationships).

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SC Digest has an article by Dan Gilmore, editor, on Creating a “Living Supply Chain”, a concept put out by Dr. John Gattorna of the Sydney Business School (Australia) and Cranfield School of Management (UK).
So what is a living supply chain?

In part, because in the end, it isn’t driven by networks and assets and technology, but by people. Somehow, too many of us tend to lose sight of that. “The reality is that it is people who drive the supply chain, both inside and outside your business, not hard assets or technology,” Gattorna writes. “They are in fact living systems, propelled by humans and human behavior.”

Ok. This is also why management is an art and not a science, its why management consultants are paid mega bucks whether or not the strategies that they recommend are finally put into action or fall by the wayside. So what’s new about that?
Most of my recent posts about supply chain collaboration namely, REA, a semantic model for Internet supply chain collaboration and Using Prediction Markets for Collaboration deal with essentially how to structure one’s supply chain around people and ideas around this particular subject.
One of John’s key observations about a dimension of competitive advantage that is begging for exploitation is recounted below,

It is the failure to understand that human element, or indeed the lack any real body of knowledge in this area of supply chain, that is a major force in why some many strategies go unrealized, and many efforts at collaboration produce little value. Harnessing that dimension is the next and only real source of competitive advantage. “If you can understand and correctly apply a more enlightened approach to managing this ‘human factor’ in the supply chain, you’ll discover a primary source of performance improvement. It’s all there for the taking.”

While harnessing the power of people within the supply chain is not the only real source of competitive advantage but it is one of the important sources and should be tapped. Well, then the automatic question is – HOW?

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In an article titled Learning to manage complexity, Jonathan Byrnes writes about how growing companies succumb to complexity – their own complexity brought about by growth.

“Success often hurts, and even mortally wounds, well-run small businesses.”

In the article, Jonathan recounts a particularly compelling observation by Daryl Wyckoff,

Wyckoff described a rather strange profitability pattern of trucking companies. Both small and large companies were very profitable, but the medium-sized companies were quite unprofitable.

That problem,

Wyckoff found that small trucking companies that were run by strong entrepreneurs, often hands-on managers, did well and grew. They continued to grow and prosper as long as the entrepreneur could see what was happening in the whole company and directly control all the activities. The problem was that as these small successful trucking companies grew, they typically established a network of terminal facilities. At some point, the complexity of this network prevented the entrepreneur from being able to know and personally manage the whole system.

And further more,

Some entrepreneurs figured out that they would have to manage their companies in a different way. They hired strong terminal managers, delegated authority, and managed through planning-and-control systems. These entrepreneurs were able to continue growing their companies and wound up having very profitable large companies. Other entrepreneurs, however, couldn’t let go. They tried to continue managing their growing companies as they always had. Costs went out of control, and profitability plunged. They had to retrench, and once again they found themselves managing small trucking companies.
Because they were strong entrepreneurs and the companies were small again, they were able to regain control of their companies. They once again made their companies prosper and grow, up to the point where they lost control, lost profitability, and had to retrench yet again. And so the cycle continued, causing the “Bermuda Triangle” Wyckoff described.
In later work, Wyckoff and others found the same pattern in the restaurant industry, the hotel industry, and other similar businesses.

This is something that I read about frequently happening in Silicon valley startups as well. Except that in this case because of the influence of VCs (Venture Capitalists) who are quite aware of this managerial competence gap that entrepreneurs and founders often have, they exert considerable influence and power in bringing in managers and technicians who are well qualified to take the firm into the second stage of growth.

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Fiscal Visibility In Supply Chain = Money Saved is the title of a new opinion piece by author Michael Stolarczyk who also blogs at BlogonLog.
Michael notes,

A typical apparel company, for example, might source fabric from China, manufacture garments in Malaysia, send them to Italy for custom design work, then ship final products to a 3PL warehouse in the United States for delivery to major department stores around the country.

The above is an example of how dramatically the options for manufacturing, coupled with logistics options and supply chain technology, for any firm anywhere has shifted in less than two decades. However, this shift has also laid the axe to traditional notions of ownership and control driving up risks across the supply chain and thus inventories (in part to cover the lead times and in part to act as a buffer to rising risk) as well. You might have been used to bull whip effects in a supply chain on a domestic scale. What about bull whip effects on an international scale and what effects will such phenonmenon have on local economies that form part of such global supply chains?
Also remember that a customer’s notion of product availability has not been downgraded as a result of the increased lead times and coordination that firms have taken upon themselves. Instead, if anything, a customer’s notion of product availability and customer service has migrated northwards fueled by better communication and awareness i.e. trends are communicated in real-time these days.
So how have companies executed upon their strategic decision to outsource or offshore or some combination of the two?

“Poorly,” notes Michael,

The need for advanced solutions may seem obvious, but a surprising number of companies still have a long way to go when it comes to global supply chain technology sophistication.

and,

On average, large companies report their global supply chains are only 50 percent as automated as their domestic supply chains.

and,

The interesting news continues — only six percent qualify their global supply chains as highly automated, and a full 90 percent of all enterprises report their global supply chain technology is inadequate to provide timely information required for budget and cash-flow planning!

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In this concluding review of the report titled – Creating the Optimal Supply Chain published by experts from Wharton and BCG, I take a look at the section titled – Supply Chain Enterprise Systems: The Silver Bullet?. In earlier posts, I had reviewed the first three sections namely, You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value, Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management and Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption. The report – Creating the Optimal Supply Chain is available online as well.
There can be little doubt in the minds of supply chain professionals and practitioners that managing the supply chain is no easy task no matter how simplified the meta level process diagram looks like that neatly shows product flows in one direction and information flows in the other. It is precisely because supply chain management is such a complicated issue that Supply Chain Enterprise systems have appeared on the scene from a variety of vendors – SAP, Oracle, i2, Manhattan etc. However, since supply chain management is a rather complex task in itself, systems deployed to facilitate supply chain management are also complex such that a practitioner now has to deal with supply chain complexity through a complex system. And thus go I to say – “Have you really solved a problem when your solution creates two new problems?” This task is not made any easier when you have to wade through not only a complicated solution set but oodles of marketing gimmicks, ploys (and well meaning marketing professionals as well), endless half promises with inflated verbiage and out and out term misuse.

According to supply chain experts from the Boston Consulting Group (BCG) and Wharton, applying enterprise systems technology to supply chains is often a difficult undertaking with an uncertain outcome; in reports and cases cited by both BCG and Wharton, companies that have implemented supply chain technologies often fail to leverage the new systems for a competitive advantage.

That is by itself not surprising at all. The success of a supply chain system implementation (or for that matter any type of implementation) is limited by the capability of the people deploying and using the system. Furthermore, in order to use such technology to create competitive advantage is a task of an order well above the capability that some firms possess or are even in the process of acquisition.

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In the continuing review of the report titled – Creating the Optimal Supply Chain published by experts from Wharton and BCG, I took a look at the section titled – Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption in this post. In earlier posts, I had reviewed the first two sections namely, You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value and Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management. The report – Creating the Optimal Supply Chain is available online as well.
Supply Chain disruption is making headlines in recent times because of events that occurred in recent months past such as terrorist strikes, hurricane Katrina and the longshoremen strike at the US West coast ports. I must reiterate again, that the macro picture against which such supply chain disruptions might occur is the globalized, outsourcing/offshoring manufacturing/procurement business world. That implies that while the world’s resources and manpower is at a firm’s disposal, more or less, so also are the world’s problems – in a global supply chain, the disruptions even though occurring locally might have multiplied effects far beyond the locally known or observed effects. Also, those effects might not even be noticed by those decision makers who sit far removed from the means of procurement or production and the first intimation of the crisis might be at the supply level by which time it might be far too late.
The authors state,

Today’s leaner, just-in-time globalized supply chains are more vulnerable than ever before to natural and man-made disasters — a reality that creates greater demands on companies to keep supply chains flexible and integrate disruption risk management into every facet of supply chain operations.

That’s just way off-base. Today’s globalized supply chains, whether or not they are just in time, cannot be in any sense leaner than before. Given the fact that lead times have increased in a globalized world through outsourcing/offshoring, inventories have gone up in every stage of the supply chain – so how have globalized supply chains become leaner? But it is also true that exposing one’s lines of supply (just as in the case of war strategy) globally, the risks of disruptions have also increased. Now, the question has to be asked, was it worthwhile to have gone the route of globalization in procurement/manufacturing on the basis of per unit cost without taking into account the total costs of procurement that are involved for the supply chain?

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