@ Supply Chain Management

InformationWeek has a dated article about Artificial Intelligence making a foray into the Supply Chain Management space. The article by David M. Ewalt talks about how

Software makers such as IBM, i2 Technologies, Manugistics, and SAP are rushing to imbue supply-chain-management tools with artificial intelligence, allowing them to make better choices and even learn from mistakes.

Since the article is dated to April 2002, which is roughly 4.5 years ago, now would be an appropriate time to evaluate the progress made so far.
Have you heard anything remotely intelligent in Supply Chain Management from SCM software players? (Hah, haha!!)
On a more serious note,

Supply-chain-management programs are structured sort of like flow charts, following a make-and-sell model of supply and demand. Software that IBM Labs is building works more like bees in a hive, with lots of autonomous agents going out into the world collecting data. The result, says Grace Lin, a senior manager at IBM’s T.J. Watson Research Center, is a system that can more easily consider new sources of information. These “sense and respond” systems make their own decisions based upon the variables at hand and aren’t strictly confined to a set of rules.

Further as to what this AI would be doing,

IBM’s effort essentially gives the program artificial intelligence, so it compares current business conditions to historical ones and forecasts what’s likely to happen next. “It doesn’t just react, but anticipates,” Lin says. And based on what actually does occur, the program can compare its forecast against reality, learning if it made a mistake. Lin says she expects a finished prototype later this year and a commercial version within five years.

Its about 4.5 years since this article and so I went searching for an IBM AI based software that is either in its last developmental stages or commercially deployed for supply chain management.

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In Part 1 of Healthy paranoia drives investment in supply management, I explored issues in supply management as illustrated in Global Logistics & Supply Chain Strategies Magazine (online version) – an article in their recent edition is on Investment in Supply Management. The article was authored by Jean V. Murphy.
In the previous part, I explored what firms view as supply management and what solution providers view as Supplier Relationship Management (SRM). In this part, I will explore how firms think about supplier management and supplier networks and the steps that firms could take to structure their relationships vis a vis their suppliers as outlined in the article.
Jean outlines the steps that comprise supplier management as follows:
Core Suppliers
Jean notes that the first step is,

identifying key suppliers that are core to a company’s operations and that warrants establishment of joint processes and communications.

And,

So the first step in formalizing a supplier management program is having visibility to your suppliers and how much of your enterprise they supply.

What I find surprising is that when it comes to supplier management, firms are sometimes clueless about where and how they spend their dollars. This point would not have arisen if firms had a firm idea of the power of their suppliers (harkening to the Five forces model from Michael Porter).

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The Defense Department is looking to outsource the management of its domestic freight-a contract that could run into the billions of dollars. The program is intended to cut costs and boost service; it could also shake up the industry.

DC Velocity has an article about the DTCI – Defense Transportation Coordinator Initiative that is finally getting some well needed publicity.
I’m pleased to see something that I was part off for more than a year finally seeing the light of day. And I choose the word “part off” very carefully because you can only be a “part off” something like this – the DTCI project was just huge. The dataset was huge. The dollar amounts were more than huge. The meetings lasted days. The computational times were spread over weeks. And so on…
So what is the DTCI all about?

Perhaps it’s no surprise that the people who brought us stealth technology have launched an all-out war on freight spending and nobody seems to have noticed. And the Department of Defense (DOD) surely is thinking big. In August of this year, DOD began reviewing proposals submitted under its Defense Transportation Coordination Initiative (DTCI)—a program through which it will outsource the management of all DOD freight moving commercially in the continental United States.
The goal of DTCI is to improve the speed, predictability and reliability of transportation while simultaneously reducing costs by as much as 20 percent. The rest of us call it third-party logistics (3PL), but hey, this is the government, which rarely misses an opportunity to make up its own acronym.

Nothing could be truer that governments make up acronyms on the fly. This is especially painful if you as an outsider have to sit through meetings where you get bombarded with acronymns every third or fourth sentence. I mean that they have a whole different language unto themselves.

Now, DTCI is no secret … the DOD has been working the circuit since early 2004, talking the vision and addressing concerns. It has even created a public Web site devoted to the initiative. But outside of the defense world, it hasn’t generated much buzz, and it should.
We’re talking billions of dollars in freight over the life of the contract. That’s not a typo. Billions of freight dollars. And when you start shifting that kind of money around in a market, changes happen. Not just for the players involved, but for everybody playing in the sandbox.

The last thing you want is for the government to make a move because when a governmental department the size and scope of the DOD shifts its way of doing things, its like an elephant in a china shop, more or less. With the DTCI, the government wanted to make a significant first step of bringing in private parties to manage the DOD’s domestic freight. The DOD in any case doesn’t use its own fleet for domestic freight shipments except in some special cases and contracts carriers to ship stuff already. However, in DTCI, its trying to bring in a 3PL for very much the same reasons that a firm would bring in a 3PL.

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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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Debra Hofman, of AMR Research, writes about Getting to World-Class Supply Chain Measurement online at Supply Chain Management Review in their October edition.

The questions we receive run the gamut, from “What should we be measuring?” to “How do we get these numbers?” to “What do we do with the data once we get it?” What companies are in essence asking is, “How do we get to world class supply chain measurement?”

Debra first lists out some of the recounted obstacles with supply chain measurement:

We see companies that are looking at hundreds, sometimes thousands of metrics.

Perhaps, that is a symptom of too many managers and the need for measuring their performance in order to justify the exercise of having so many managers in the first place. Or perhaps, it could very well mean that no one has a clue of why each metric needs to be measured in the first place.

There is a definitional problem when there are no accepted underlying truths that everyone can agree upon. When it is more important to define one’s success by a metric, then definitely a definitional game is going to be played.

Clearly, some debate is healthy and, more importantly, necessary.

and,

There is a point, however, where debate becomes a form of resistance, providing a way to put off change.

One company we talked to described this as the “metric-of-the-year syndrome.”

One wonders if there is correlation to office holder/manager of the year as well that is also behind the metric of the year or quarter. I’m sure that everyone understands that metrics measure i.e. report back how things are going and they don’t innovate new ways of doing things. Metrics reside on the feedback loop and not on the forward loop of acting.

Or the only available data. I have found frequently that this is the case. Like the old adage, “What you don’t measure is not important to you!”, those companies that don’t have a handle on their data are a goldmine for consultants.

For example, in our benchmarking studies at AMR Research, we measure the perfect order, which is defined as an order that’s complete, accurate, on-time, and in perfect condition. An order that is split because product is not in stock for some of the lines on the order is considered incomplete, and therefore the whole order is imperfect. What some companies have found when they instituted this metric is that in these situations, people were canceling the original order and replacing it with two new orders that could be filled, thereby keeping the perfect-order rating up.

I don’t think that I need to say more!!

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Everything’s changed in 20 years; yet nothing’s changed in 20 years. Veteran DC consultant Ken Ackerman may rhapsodize about the potential of technology, but in the end, he says, the business is still all about the effective management of space and time.

And so begins a Q&A with Ken Ackerman by DC Velocity magazine (2003) that delves into Ken’s view of where warehousing has been and where it is headed. I have excerpted some of the views that I found illuminating below:

Q. If a stranger were to walk up to you and say, “Hey, what are the three or four most important elements in a good warehousing or distribution center operation?” how would you answer?
A. I would tell them they needed to be sure they were managing the space as well as it can be managed and managing time, which is the labor, as well as it can be managed. Is there some waste in the operation? Are there steps that shouldn’t be there?

I would agree but I think a larger point has been overlooked. Ken’s points are exclusively about what happens within a warehouse’s four walls. The first important element in a good warehousing operation is location, location, location. Today, these warehouses may even be located in a third country replicating inventories and buffers in different parts of the world. If you supply chain has some hard infrastructural decisions to be made, one of them is likely to be where the warehouse(s) are located.
The next set of Q&A has to do with the influence of technology and how it is spreading into the warehousing world:

Q. Let’s say you’re a logistics professional and your job is overseeing your company’s DC operations. What has made your job profoundly different today than it was,say, 15 years ago?
A. It is the information revolution.

Q. Are you talking about this parallel flow of goods and information and how they interrelate? How is that really changing the job? Are people more productive or are people able to make better decisions because they have more information? Or is there another side to this, with people becoming overwhelmed by information?
A. Both. I think if I look back at the last 20 – some years, the biggest thing to come along has been automatic identification, specifically bar coding and scanning. The next big thing, which I believe will supplant and possibly replace scanning, is voice recognition in the DC.

Q. What are some of the inherent advantages of voice? Are we talking about a technology that can really change the game?
A. Yes, and I’ll tell you why. Your hands are free with voice. You don’t have to hold a scanner. You don’t have to hold any papers . You run down the aisle we a ring your earphones, your microphone and a computer attached to your belt, and you pick orders. The machine says, ‘Go to X-70’; you say, ‘ I am at X-70 and I see queue #1234′; it says, Pick six pieces’; you say, ‘Six , five, four, three, two, one, check’; and it tells you to proceed to the next location. It’s programmed to check the count, too – which means better accuracy. The wholesale grocer that I saw doing it bought this system to improve accuracy; it did not buy it to boost productivity. Getting both was a pleasant surprise.

There are two aspects to Ken’s response – there is the informational aspect (typified by how IT is bringing information to those who need it) and then there is the intelligence aspect (typified by how new technology is developing “directional” capability when it sits on top of the information that has been generated by the IT systems). Now, the reason that IT systems were absolutely necessary (or even is absolutely necessary in different applications) is that while economics dictates the scale of an operation i.e. getting larger distributes marginally increasing costs on a larger volume of stuff, scale overwhelms the human being’s mind when it comes to deciding/choosing the best way of doing things leading to sub optimal decision making. IT systems collect information even from a very large scale operation and are able to aggregate them in a way conducive to establishing patterns that in turn lead to systematic processes. However, when systematic processes scale bigger than the human beings ability to execute, then intelligence of a rather low-level variety is required to sort out these choices. As you can see, there is a trend there – scale, metaprocess, scale, metaprocess where the metaprocess is what people develop to handle scale and the inherent complexity of scale.
Also, I’d like to think that the gap that opens up between scale and metaprocess is the entrepreneurial gap wherein new solutions are warranted and whole new ways of doing things open up.

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