@ Supply Chain Management

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Opening Pandora’s Box – Are you tired of this Out of the Box thinking thing already?

If you’re not, here’s more…
I came across a post by Steve Talbott titled – The deceiving virtues of technology. In a sense, this post is only peripherally related to the two previous posts in this thread – Imagining the tenth dimension (Or thinking out of the box?) and Before thinking out of the box, how about thinking in the box?. While the post might be dated November, 2001 the contents of the post as Steve articulates them are far older.
It is related to the previous post in the sense that a reliance (or over reliance) on technology makes us dependent on that technology to articulate our ideas or even carry out simple arithmetic. In the business context, it is true that there are some business applications or problems that would simply surpass the bounds of human competence (Since I work with optimization models, I’m entirely aware of that limitation in human beings because its a limitation in me – I think I can keep about 3 or 4 variables in my head at a time but not more than that). Here, technology is vital in filling in the gap that lies outside the bounds of human competence (as is conceived today) – technology (such as a computer, mathematical programming environment and optimizers) is a real aid. However, my co-workers are dependent on this same technology in a different way – for them it is not an aid in the true sense of the word. Optimization models are really black boxes that spit out magical answers when you click Run. Period.
But why make a big deal of it? After all, if I were to change the fields, I would find myself using some other technology less as an aid but more as a form of dependency. The difference is that I am troubled by this not because I’m a self control freak or too independent minded but because I’m skeptical of the spit out “answers“. Usually, there are too many assumptions that are never made explicit, calculations and underlying models that capture reality in a way that is very particular and finally limitations beyond which such black boxes perform erratically.
This is as true of a financial calculator as it is of ERP or SCM software. It is why I have been “suspicious” of the SOA and SaaS operating models that are being developed for the enterprise market. The learning organization (do you hear this term bandied a lot these days?) was found not learning and thus has been outsourced – that cannot be a good thing for the long term.
Also, I promise that this is the last of the thinking out of the box series. Really!

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Global Supply Chain Best Practices Quiz

SDCExec.com has posted a Global Supply Chain Best Practices Quiz authored by Bernie Hart, a global product executive at JPMorgan Chase Vastera.

Start the New Year right with nine tips for evaluating your supply chain management organization

First the scoring matrix,

Upon finishing the quiz, if you find that you have responded with more “no” than “yes” answers, 2007 may be the time to transform these gaps into opportunities for improved supply chain management and greater profitability.

Bernie provides in total 27 questions under 9 major areas. The only problem that I have with this quiz is that reaching a ‘Yes’ or ‘No’ answer is a difficult proposition – in other words, this is a difficult (and perhaps for some, a very difficult) quiz. In fact, for a number of questions, the answers are likely to indeterminate.
Take the following question for example under the major heading:

Design of your Global Supply Chain Network should align with your customers’ requirements and expectations.

Are customer service levels understood, and is the supply chain designed to meet them?

How can you answer whether the supply chain is designed to meet the understood customer service levels? If you attempted to answer this question at the very strategic look (perhaps through some optimization problem), how would you incorporate the notion of customer service levels into that model. If you took the route of inventory modeling and optimization that allows you to position your inventories in appropriate locations in order to meet expected customer service levels, how do you account for the optimal logistics model to actually execute this inventory location. The answer, as of now, cannot be given so easily.

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SAP Warns, Sending Shockwaves Through Enterprise Software

SeekingAlpha reports about the results that SAP AG reported today – SAP Warns, Sending Shockwaves Through Enterprise Software.
Eric Savitz of Barron’s reports,

Bad news for the enterprise software sector this afternoon, as SAP (SAP) just warned that fourth quarter software revenue growth came in short of previous guidance. This is a bit confusing, so bear with me. SAP reports product revenues, software revenues, and total revenues, and it reports on both an actual and constant-currency basis. But the bottom line is that software sales came up short for both the quarter and the full year.

The SAP stock (SAP) is off more than 10% as I write and Oracle (ORCL) is also taking a late afternoon dive.

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SCM Newz roundup

1. IBM Goes Up Against Oracle, SAP In Product Lifecycle Management
IBM is partnering with UGS to deliver a version of UGS’s core product – TeamCenter Express targeted at small and midsize businesses, reports CRN Online. The gist of the partnership centers around:

The Teamcenter system competes with an Oracle PLM product launched in mid-2003 and an SAP offering. IBM is eager to market Teamcenter Express because it often generates a demand for IBM’s own WebSphere middleware and data translation products.
PLM for the most part has been a concern of large companies with complex products enjoying long shelf lives. UGS Teamcenter, for example, is the tracking system for the Lockheed Martin F-35 Strike Fighter aircraft, with hundreds of suppliers and partners.
If the IBM-UGS partnership is a sign of the times, small and midsize businesses with complex products want the benefits of collaborative product data management as well.

In so doing, IBM would be stepping on the toes of Oracle and SAP, not to mention other CAD/CAE providers such as Dassault (makers of CATIA).

2. Kimberly-Clark Outsources Some Sourcing, Supply Management Services
Since Kimberly Clark (KC), has a major operation right here in Neenah, WI (about 40 miles south of where I live), I get to hear about the goings on there. It helps that I have friends and relatives who work there. SDExec.com reports,

Kimberly-Clark Corp. has signed a five-year contract with procurement services provider ICG Commerce, outsourcing to the firm certain sourcing and supply management activities.

And the particular corporate logic behind this move,

“By selecting ICG Commerce, Kimberly-Clark’s sourcing and supply management staff will focus their expertise on such critical business purchases as raw materials and packaging supplies, while leveraging ICG Commerce’s market knowledge, sourcing strategies and procurement experience to reduce costs and improve efficiency.”

3. Click Commerce Offers New Warehouse Management Solution
A new offering from SCM software provider ClickCommerce is highlighted in this report from SDExec.com.

On-demand supply chain management solutions Click Commerce Inc. introduced WMX, a new warehouse management solution

Further more,

Click Commerce said WMX addresses the challenges of today’s complex supply chain environments: visibility and control within and beyond the four walls of a warehouse. Based on service-oriented architecture (SOA), a modular design principle, the WMX enables companies to integrate with third-party systems, reducing implementation time and costs.
In addition, the new product incorporates configurable, rules-based business processes, which gives companies the flexibility to adapt their warehouses to changing conditions. For example, the solution enables companies to start operations at new warehouses quickly and cost-effectively automate processes to meet their customers’ needs. In addition, Click Commerce WMX supports technologies such as voice-enabled warehouse activities and radio frequency identification (RFID).
Click Commerce WMX also supports return and repair business processes. These post-sale operations are becoming an additional revenue source for companies and another way to differentiate themselves from their competitors. Click Commerce WMX is designed to manage the dynamic processing requirements of reverse logistics and help deliver improved customer service.

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Differences between ERP and PLM – A White Paper

I was forwarded this whitepaper written by Chuck Cilamore, CTO of Omnify Software. The topic of the whitepaper is to delineate the roles of ERP (Enterprise Resource Planning) and PLM (Product Lifecycle Management) in creating a successful collaborative environment. Omnify Software is a providers of PLM software for OEMs (Original Equipment Manufacturers) and EMS (Electronic Manufacturing Service) providers.
Chuck highlights the following as the essential difference between an ERP and PLM offering:

The manufacturer had an ERP system in place to manage all of the operations-centric business activities such as financials, purchasing, planning and work orders. But the ERP system did not address their engineering design requirements.

Furthermore, the real objective of the PLM is,

A PLM system is designed to manage the full gamut of engineering information in a single location through the many stages of a design. The enterprise server manufacturer used the PLM system to manage the lifecycle and all revisions of their Bill of Materials (a listing of components used in a product), provide revision control of engineering documents (such as assembly drawings, schematics and datasheets), electronically route approvals for New Part Requests (NPRs), manage and automate Engineering Change Orders (ECOs), and control Approved Manufacturer’s List (AML) changes. More importantly, the PLM system helped bridge the gap between engineering and manufacturing. By providing direct data sharing with the ERP system, any changes made in the PLM system were automatically uploaded to ERP so that engineering and manufacturing were always in synch.

The essential distinction being drawn between ERP and PLM by Chuck is a void that exists on the ERP side i.e. an ERP system doesn’t delve into the details and complexities of product development and lifecycle management. However, that void is something that ERP systems will expand into by acquiring some of the PLM players and integrating their products into the ERP suite of offerings. I saw the same thing happening with ERP players gobbling up TMS providers to precisely fill this gap that was perceived in their offerings.

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My best wishes…

Wishing you all a Merry Christmas, a great New Year ahead and the best opportunities to come.

P.S: I’m taking a much needed break and will return to blogging a little into the New Year 07.

Building a lean supply chain

In the article Building a lean supply chain, Adam J Fein takes up the notion of building a lean supply chain and how far down along that path supply chain investments and executives really are. The article is dated Feb 2006 and so is not that far from the current state of affairs.
Adam Fein notes,

There is a widely held, but inaccurate, perception that new technologies have led directly to declines in the inventory-to-sales ratio, an important indicator of “buffer inventory” in the supply chain. In theory, information technology-based supply chain practices such as just-in-time (JIT) inventory management, warehouse automation, and the introduction of bar codes should have allowed companies to improve their management of orders and stockpiles of materials.

And further,

However, the empirical evidence for leaner supply chains is surprisingly weak. Economic research studies continue to find that aggregate manufacturing, wholesale, and retail inventory-to-sales ratios remain within historical ranges. For example, the inventory-to-sales ratio for wholesale distribution was essentially unchanged in the 1990s and has only begun trending down slightly in the past four years.

Adam Fein also refers us to the research paper on which this article is based on. From the article, Adam Fein notes the testimony of an official from the Federal Reserve Bank concerning inventory growth:

In testimony to the United States Senate, Federal Reserve Bank of New York Senior Vice President Charles Steindel stated that “…the inventory-sales ratio in manufacturing has declined almost continuously since the early 1990s, which we think is consistent with improved inventory management techniques.” (Steindel 1999). Vice Chairman of the Federal Reserve Board Ferguson offered additional support by noting that “… investments in information technologies have helped firms to cut back on the volume of inventories that they hold as a precaution against glitches in their supply chain or as a hedge against unexpected increases in aggregate demand” (Ferguson 2001).

Further more, he notes in his research paper,

Finally, at least some private companies invest in supply chain technology based on this belief. A 2003 survey found that 56 percent of supply chain management software buyers name “reducing inventory” as the most important factor fueling their investment in supply chain technology.

However, Adam Fein notes that inventory-sales ratios have not been declining,

Filardo (1995) argues the aggregate manufacturing, wholesale trade, and retail trade inventory-sales ratio have all remained within their historical ranges. Stock and Watson (2002) show that the relative volatility of inventories and sales has not changed as much as previously estimated by using more sensitive statistical tests. Khan (2003) questions the impact of technological innovation on the aggregate inventory-sales ratio by noting that the nominal inventory-sales ratio rose before it fell. Ginter and La Londe (2001), in one of the few studies to use financial statements from public companies instead of government data, conclude that some industries have seen substantial declines, while others have shown no improvement or shown an increase in inventory levels.


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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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