@ Supply Chain Management

3PLWire alerted me to a recent article by InboundLogistics.com that rounded up a few of the supply chain bloggers out there in the blogosphere. I’m glad, over the top happy, that I made the list and here is the mention,

@Supply Chain Management
at-scm.com
Blogger: Chris Abraham, supply chain management consultant.
Audience: General logistics and supply chain professionals.
Content: The newly redesigned blog provides Abraham’s insightful take on news articles, trade publication features, and research reports pertaining to SCM and logistics. It also includes a comprehensive list of recommended logistics blogs and a fun map showing the location of site visitors throughout the world. (Kudos to Abraham for drawing visitors from as far away as Africa and New Zealand.) The blog is updated regularly and provides a moderate amount of user commentary.

The article by Amy Roach Partridge (on a side note, I was quite puzzled by a user who used a Thomas Publishing Company IP and I hadn’t the faintest idea who that might have been. Now, I do!) highlights some of the other supply chain bloggers who are linked to from my site as well. In the blogosphere, Know thy links is the right adage. Here they are:

1. 3PL Wire
2. BlogonLog
3. China Logistics News
4. Lean Blog
5. Logistics List
6. SCM Pulse
7. Supplychainer
8. Who Said Supply Chains Are Boring?

My thanks to Amy. Now to greater blogdoms!!

Tags: Supply Chain Blogs, Roundup of supply chain blogs, InboundLogistics.com

I reported in this post (Item 2) – SCM Newz Roundup (originally reported at SC Digest) about Home Depot’s brand new panacea that is going to help it return to the top of its game. Only its no panacea. Its just foolhardy.
Here’s the gist of the SC Digest news report:

The moves clearly reflect in part the impact of Home Depot’s VP of Supply Chain Mark Holifield, who came to the post after a similar and well-respected stint at Office Depot.
He said that Home Depot would focus on improved inventory management, implement a system that will provide better visibility and control over products delivered to the home, improve visibility of product flow from suppliers all the way to the store shelf, and cut order-to-delivery lead times, and improve inbound distribution.
Home Depot said the company is also looking to improve its supply chain technology is in several other areas, including:
* Supply chain analytics and decision-support
* Demand planning and forecasting
* Store replenishment
* Financial planning relative to merchandising
Home Depot noted the power of inventory improvements, saying that every one-tenth improvement in inventory turns means drives an additional $200 million in cash flow.

Here’s what Home Depot wants to do – improve its operations in order to drive better cash flow through its supply chain. But is that Home Depot’s problem?
Like I have said before, I have not done a comprehensive survey of customer attitudes to Home Depot. So I do the next best thing i.e. stick my thumb in the air and ascertain the direction of the wind. And which way does that blow?
1. Home Depot’s Real Problem
Here’s what she recounted as her Home Depot experience:

I recently visited Home Depot so I could use a gift card. Was all primed and ready to spend several hundreds of dollars (in addition to the $50 gift card) on paint, ceiling fans, and the like. Net-net, I didn’t spend a dime at Home Depot. I ended up going to Lowe’s and Samon’s. Why? Well, the Depot was dirty, cramped and cluttered. I couldn’t even find the aisle with the ceiling fans. The paint selection was far smaller than that of other stores. Nobody seemed interested in helping me and I don’t know that I blame them. The employees I did see (huddled around the end of aisles or at the checkout counter) looked terminally depressed. Overall, a dismal shopping experience.

Whoever gave Mary Schmidt her gift card actually contributed to Home Depot’s cash flow except that it lost out Mary Schmidt in the process. That’s like getting a ‘F’ in Business 101

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LogisticsToday and Expansion Management offers a matrix that summarizes the state of logistics practices, environment and competencies by cities in the Midwestern part of the US – they call it the Logistics Quotient : Midwest.
The methodology,

The Midwest Regional Logistics Quotient matrix provides an overall ranking of each city within the Midwest region, assigning a rank of 5 stars to the top tier, 4 stars to the next group and so on down to a 1-star rank

LogisticsToday and Expansion Management also list their 10 logistics categories in which the midwestern metro areas are ranked. They are:

* Transportation and distribution industry–based on business and employment base providing transportation, distribution, warehousing and related services.
* Work force–geared to existing and available logistics-related workers in the area.
* Road infrastructure–measures factors like available lane miles per capita, interstate highway access, miles of paved
roads etc.
* Road density, congestion and safety–ranks the city on traffic volumes and delays as well as accident statistics and other factors affecting the smooth flow of traffic.
* Road condition–draws on state performance and includes condition of highways and bridges among other measures.
* Interstate highway–includes access to interstate highways, spending on highway construction and maintenance.
* Taxes and fees–provides a measure of logistics-related costs, including highway and fuel taxes and related business activity taxes.
* Railroad–offers a state-based rank of access to Class 1 and other rail services and miles of track.
* Waterborne commerce–includes ocean port capacity as well as inland waterways.
* Air cargo–ranks the city on its access to cargo services, including wide-body passenger service by combination carriers, international and expedited services.

This kind of information is invaluable to me when I engage in Supply Chain Network modeling and consulting on the basis of this. This sort of matrix allows for easy comparison between geographical locations and the costs thereof of operating within them.

Tags: Logistics Quotient, LogisticsToday, Expansion Management, Ranking of Midwestern USA metro areas for logistics

1. State of Washington Considering Restrictions on RFID Technology
SC Digest reports on an effort by a lawmaker from the state of Washington to restrict the use of RFID technology. He has introduced an “Electronic Bill of Rights”,

that would put significant restrictions on the use of RFID in an effort to protect consumer privacy

So what is the scope of this legislation?

The proposed bill would outlaw the collection, storage, and disclosure of information gathered through radio frequency identification technology without notifying consumers. The bill states that all companies using active and passive RFID devices would have to either disable the devices or gain consumer consent.
The measure would prohibit companies from mandating that consumers have RFID tags for service or refunds. It would also prohibit people and companies from scanning or reading the devices to identify consumers without first obtaining consent.

Firstly, I didn’t think that companies really wanted to know how many cans of Coke are in your fridge at this present moment? Assuming ofcourse, they’re able to differentiate that from the number of crushed/used coke Cans that are in your garbage. Such a level of granularity might be quite important for marketing purposes but I would think that its efficacy would decline on an operational level as far as the consumer is concerned. Nevertheless, who knows what an innovator would come up with in order to invade a consumer’s privacy? But isn’t it within the purview of the consumer to punish such a firm by not consuming such a product?

2. Supply Chain Strategy: Home Depot says it’s Ready for Supply Chain Transformation
SC Digest reports on a new initiative by Home Depot with regards to its supply chain.

In the face of slowing sales growth and a slumping stock price, home improvement retailer Home Depot plans to increase investment in logistics infrastructure by $900 million, with a big focus on inventory management and improved central distribution.
The comments came from Home Depot execs at the company’s annual meeting for financial analysts.
The moves clearly reflect in part the impact of Home Depot’s VP of Supply Chain Mark Holifield, who came to the post after a similar and well-respected stint at Office Depot.

Hey, I’m all for supply chain improvements but this is a joke. Just look at the news item itself. In the face of slowing sales growth and a slumping stock price, what does Home Depot plan to do? Improve its supply chain? What is wrong with this firm?
Anecdotally, Home Depot’s sales growth is slowing because Home Depot sucks at selling. Is sales growth slowing because of the lack of the proposed solution below:

improved inventory management, implement a system that will provide better visibility and control over products delivered to the home, improve visibility of product flow from suppliers all the way to the store shelf, and cut order-to-delivery lead times, and improve inbound distribution.

What is Home Depot smoking? And on the same note, what is Lowes doing right?
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Running down the path of metrics, I came across this take on the use of metrics in the business world. This article by Julie Fraser titled – Are metrics driving or killing your business? can be found at Manufacturing Business Technology.

The question is whether the behavior that most companies are rewarding actually helps performance, or hurts it.

Ms. Fraser’s line is not really what the right metrics are but whether the measured metrics actually help performance or hurt it. In other words, does it work or not?
Here’s the standard example given (and why am I not surprised that manufacturing gets the short end of the stick?)

Many talk about fact-based management, but outdated manufacturing metrics often conflict with corporate goals. For example, a plant that measures equipment utilization as the top indicator of success may in fact lead the company to carry excess inventory. In another scenario, minimizing overtime might hurt on-time shipments to customers and thus, overall revenues.

But both of these metrics are not manufacturing metrics but confusions arising from accounting. It is true that manufacturing measures equipment utilization is measured in addition to cycle times, changeover times and mean time to failure. However, utilization is measured for accounting reasons not because a manufacturing/plant manager is going to feel extremely accomplished because his/her machine was utilized 95% of the time. The concept of unit cost arises in accounting and not in manufacturing and everything else follows from that.
While Ms. Fraser indicates that measuring equipment utilization “may” in fact lead the company to carry excess inventory but that is not only because manufacturing managers are measured using the notion of efficiency but because unit costs are minimized in large batch production. Costs in production as it is/was measured is a fuzzy concept because it is not related to actual demand and the actual price paid by the customer but a weighted factor of allocation of overheads, raw material costs etc. In order to minimize unit costs using the accounting dimensions, utilization is a key lever and it has been pulled many a time.
But what can one make of the following set of metrics led dead-ends?

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Little’s law is a result coming out of the field of queuing theory. If you’ve taken an introductory course in Operations Management or perused an introductory text in Operations or Industrial Engineering, I’m sure that you’ve come across this result. Simply stated,

The average number of customers in a stable system (over some time interval), N, is equal to their average arrival rate, Lambda, multiplied by their average time in the system, T, or:

What is interesting about this result is expounded further in the Wikipedia posting,

Although it looks intuitively reasonable, it’s a quite remarkable result, as it implies that this behavior is entirely independent of any of the detailed probability distributions involved, and hence requires no assumptions about the schedule according to which customers arrive or are serviced, or whether they are served in the order in which they arrive.

However, this is true only for stable systems which is a good place to begin with considering its generality of application. The scope of its application is not restricted to customer service scenarios but also to manufacturing as well as other operational environments. What is interesting to me about Little’s law is that it is well within the direction of what can be aptly termed factory physics. Furthermore, just as there is the very real need for a comprehensive undertanding of factory physics, there is an analogous need for understanding supply chain physics as well.
So what is Factory Physics? Factory Physics refers to a generalized field that deals with understanding the behavior of manufacturing systems. However, the real question is not whether the behavior of manufacturing systems is understood but whether decision makers situated in the firm fully understand the behavior of manufacturing systems? The question would analogously apply to the case of supply chain management as well.
The fundamental principles underlying factory physics are explored here and it is well worth a close reading. (The PDF link here provides a better representatio in my opinion)
In my next post, I will delve a little deeper into Factory Physics and what insights one can take away from those fundamental principles and find applications for them in a supply chain context. In the longer term, I think that this route offers a firm basis for developing robust metrics that are based on a sound appreciation for generalized laws of system behavior rather than taking the route of measuring what is measurable and observing what is observable. In my opinion, the former offers an empiricism that has been subsumed into the edifice of manufacturing or general operations while the latter offers empiricism on an ad-hoc and practical basis.
The journey continues…

Tags: Little’s law, Factory Physics, Supply Chain Physics, Behavior of manufacturing systems, Developing robust metrics, Metrics, Developing supply chain metrics

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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