@ 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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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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Logistics Management has a new article titled – How does your warehouse stack up? by Maida Napolitano. The survey was conducted jointly by Logistics Management and Gross & Associates, a consulting firm specializing in materials handling and logistics – First Annual Warehousing Trends Survey.

The survey was designed to help today’s warehouse managers get a clearer picture of the challenges they face today and give them an opportunity to see how their warehouse operations compare with the industry average.

The composition of the survey involved:

The results of the Warehouse & DC Trends Study are based on the responses of 485 participants involved in making warehouse-operations decisions at North American companies.

The key findings of the survey are broken down along the following lines:

• Typical Characteristics
• Goals
• Need for speed
• Operations
• Finding a solution
• Technology

Typical Characteristics of an American Warehouse

A typical North American warehouse
is privately owned (77 percent) with either an end consumer (32 percent) or a manufacturer (26 percent) as its primary customer.

1. is less than 250,000 square feet
2. receives and ships a wide variety of products, such as electronics, computers and software (25 percent); paper, packaging, and office supplies (24 percent); and chemicals and raw materials (21 percent).
3. the most common units handled are pallets (87 percent) and cartons (79 percent), with rack storage (86 percent) as the primary storage module, followed by floor storage (62 percent).
4. Over 90 percent of warehouses still pick orders manually using carts and pallet jacks, while 20 percent have evolved to some form of mechanized picking to a conveyor.
5. 3 percent of warehouses have fully automated picking requiring no human intervention. The typical warehouse uses some form of warehouse management system (WMS).
6. Thirty six percent of respondents developed their WMS in-house, 22 percent purchased a stand-alone package, and another 22 percent purchased their WMS as part of an ERP module.
7. Surprisingly, 23 percent of all warehouses still have no WMS, relying mostly on spreadsheets and order-pick sheets.
8. 35 percent of respondents have annual budgets of less than $25,000 for continuous improvement programs and 8 percent don’t even have such a budget.
9. Of the warehouse managers who have a budget of less than $100,000 (59 percent of all respondents), 37 percent said they would spend some of it on materials handling equipment, while 23 percent planned to invest in information management systems.
10. Warehouse managers with budgets of $1 million or more (7 percent of total respondents) focused more of their spending on IT. Of the respondents in this category, 41 percent reported that they would spend on information management systems, while only 21 percent planned to buy materials handling equipment.

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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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Cardinal Health Releases RFID Pilot Results in a recent news release. They report,

Test data shows promise and gaps of the technology that will affect widespread adoption across pharmaceutical industry

The aims of the RFID pilot program were as follows:

The pilot program tested whether ultra-high frequency (UHF) radio frequency identification (RFID) tags could be applied, encoded and read at normal production speeds during packaging and distribution of pharmaceuticals. Verifying the authenticity of medications along each step of the distribution process adds an additional layer of security to lessen the chance of counterfeit pharmaceuticals entering the supply chain. It is also hoped that RFID data could improve efficiencies in the supply chain.

The results of the pilot program:

Overall data collected by Cardinal Health supports the theory that RFID technology using UHF as a single frequency at the unit, case and pallet levels is feasible for track and trace. However, several challenges remain before it can be adopted industry-wide. Some of those challenges include:

• Technology and process improvements to achieve:
• Case-level reads in excess of 99 percent at all case reading stations;
• Unit-level read rates in excess of 99 percent when reading from tote containers at the distribution center and pharmacy locations;
• Allowing unit-level “inference” to become acceptable practice in the normal distribution process at stages where unit-level read rates are unreliable, but case level reads approach 100 percent (*Three stages marked in chart above);
• Barcode technology to be used as complementary and redundant technology to RFID;
• Management of the cost impact to implement and sustain the technology;
• Improved collaboration across the industry to identify opportunities to significantly improve efficiency.

Tags: Cardinal Health, Pharmaceutical Supply Chain, RFID, RFID Pilot, UHF, Supply Chain Security, Supply Chain track & trace